US GDP shrinks for 2 straight quarters, surpassing what some call a technical recession

The U.S. economy contracted from April to June for a second consecutive quarter, contracting at an annual rate of 0.9% and raising fears that the country could be on the verge of a recession.

The decline the Commerce Department reported Thursday in gross domestic product — the broadest measure of the economy — followed a 1.6% annual decline from January through March. Consecutive quarters of declining GDP are an informal, but not definitive, indicator of a recession.

The report comes at a critical time. Consumers and businesses struggled under the weight of suppressed inflation and rising borrowing costs. On Wednesday, the Federal Reserve raised its benchmark interest rate by three-quarters of a point for the second straight time in its effort to beat the worst inflation spike in four decades.

The Fed hopes to achieve a notoriously difficult “soft landing”: an economic slowdown that manages to rein in soaring prices without triggering a recession.

Fed Chairman Jerome Powell and many economists have said that while the economy is weakening, they doubt it is in recession. Many of them point, in particular, to a still robust labor market, with 11 million job vacancies and an exceptionally low unemployment rate of 3.6%, to suggest that a recession, if one occurs , is still a long way off.

WATCH | Why June’s jobs numbers have some economists worried about a recession:

June job losses spark concern over recession

Canada reported the first job losses since January, raising concerns of a looming recession, even with a growing economy.

Thursday’s first of three government estimates of GDP for the April-June quarter marks a drastic weakening from the 5.7% growth the economy achieved last year. It was the fastest expansion by calendar year since 1984reflecting the strength with which the economy rebounded from the brief but sharp pandemic recession of 2020.

But since then, the combination of rising prices and rising borrowing costs have taken their toll. The Ministry of Labor The consumer price index climbed 9.1% in June compared to a year earlier, a pace not seen since 1981. And despite widespread wage increases, prices are rising faster than wages. In June, average hourly earnings, after adjusting for inflation, fell 3.6% from a year earlier, the 15th consecutive year-over-year decline.

Uncertain times

Rising inflation and fears of a recession have eroded consumer confidence and fueled public anxiety about the economy, which is sending frustrating and mixed signals. And with November’s midterm elections approaching, American discontent has lowered President Joe Biden’s public approval rating and increased the likelihood that Democrats will lose control of the House and Senate.

Consumer spending continues to grow. But Americans are losing confidence: Their assessment of economic conditions six months from now has hit its lowest point since 2013, according to the Conference Board, a research group.

Recession risks rose as Fed policymakers continued a rate hike campaign that will likely continue through 2023. Fed hikes have already led to higher rates on credit cards and auto loans and a doubling of the average rate on a 30-year fixed mortgage over the past year to 5.5. Home sales, which are particularly sensitive to changes in interest rates, fell.

Even though the economy records a second consecutive quarter of negative GDP, many economists do not consider it to constitute a recession. The most widely accepted definition of recession is that determined by the National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that spreads through the whole economy and lasts more than a few months.”

The committee weighs a range of factors before publicly declaring an economic boom dead and a recession in the making – and often does so long after the fact.

This week, Walmart, the nation’s largest retailer, lowered its earnings outlook, saying higher gas and food prices were forcing shoppers to spend less on many discretionary items, like new clothes.

Manufacturing is also slowing down. US factories have seen 25 consecutive months of expansion, according to the Institute for Supply Management’s manufacturing index, although supply chain bottlenecks have made it difficult for factories to fill orders.

But now the factory boom is showing signs of strain. The ISM index fell last month to its lowest level in two years. New orders fell. Factory hiring fell for a second consecutive month.

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