US economy shows another decline, stoking recession fears

Some forecasters believe a recession can be avoided if inflation cools enough that the Fed can slow interest rate hikes before they weigh too heavily on hiring and spending.

The economy still has significant strengths. Job growth has remained robust and, despite a recent increase in unemployment insurance claims, there are few signs of a general increase in job losses. Households, as a whole, are sitting on trillions of dollars in savings accumulated earlier in the pandemic, which could allow them to cope with higher prices and interest rates.

“What drives the American consumer is the health of the job market, and we really should be focused on job growth to capture the turn of this business cycle,” said Blerina Uruci, economist at T. Rowe Price. The Labor Department will release July hiring and unemployment data next week.

The lingering effects of the pandemic are making signals from the economy harder to interpret. Americans bought fewer cars, sofas and other goods in the second quarter, but forecasters had long expected spending on goods to decline as consumers returned to pre-pandemic spending habits. Indeed, economists argue that a pullback in spending on goods is needed to relieve pressure on overstretched supply chains.

At the same time, spending on services accelerated. This could be a sign of consumer resilience in the face of skyrocketing air fares and car rental prices. Or it could just reflect a temporary willingness to bear high prices, which will fade with the summer sun.

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