One of the key measures of economic output has fallen for the second straight quarter, raising fears that the United States is heading into recession — or may have started.
The Commerce Department said on Thursday that gross domestic product, adjusted for inflation, fell 0.2 percent in the second quarter, which equates to 0.9 percent of the annual rate of decline.
The 0.2 percent decline followed a 0.4 percent contraction in the first three months of the year — meaning that, by a common but unofficial definition, the U.S. economy went into recession just two months ago. years after leaving the last one.
Most economists still believe that the economy does not meet the official definition of a recession, which is based on a broader set of indicators, including measures of income, spending and employment. The same GDP data will also be revised several times in the coming months.
However, Thursday’s data left little doubt that the recovery is losing steam amid rising inflation and higher interest rates. Business investment and construction activity declined in the second quarter, after having increased in the first. Consumer spending, adjusted for inflation, remained positive but slowed. Profit after tax declined after adjusting for inflation.
“We believe we are not in a recession yet,” said Aditya Bhave, chief economist at Bank of America. But the biggest point here is that the underlying trend in domestic demand is weakening. You see a clear slowdown since the first quarter.”
The slowdown, in and of itself, is not necessarily bad news. The Federal Reserve has been trying to calm the economy in an effort to tame inflation, and The White House has argued The slowdown is part of an inevitable and necessary transition to a period of steady growth after last year’s rapid recovery.
“Judging by historic economic growth over the past year – and the restoration of all private sector jobs lost during the pandemic crisis – it is no surprise that the economy is slowing as the Federal Reserve works to reduce inflation,” the president said. Biden in a statement. . After the GDP report. “But even as we face historic global challenges, we are on the right track, and through this transformation, we will be stronger and safer.”
However, analysts in recent weeks have grown increasingly concerned that the Federal Reserve’s aggressive moves — including raising interest rates by three-quarters of a percentage point Wednesday for the second straight month — will result in a recession. There are indications that layoffs are on the rise and consumers are struggling to keep up with rapidly rising prices.
“The job market doesn’t have to change that much to see a recession,” said Tim Quinlan, chief economist at Wells Fargo.