The US is entering a technical recession after growth contracted in the second quarter

The US is entering a technical recession after growth contracted in the second quarter
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The U.S. economy slipped into a technical recession in the second quarter, according to data released Thursday by the Commerce Department, which contracted in the second three months of the year.

Gross domestic product fell 0.9 percent on an annual basis in the second quarter, or 0.2 percent from the previous quarter – a measure used by other major economies. This follows data showing first quarter gross domestic product US economy It decreased by 1.6 percent.

Despite the contraction, personal consumption, a measure of the health of the US consumer, rose 1 percent, a slowdown from 1.8 percent in the first quarter, but still a sign of strength.

The second quarter data was driven by weak business inventory growth. Several retailers reported an unusually rapid increase in inventory last year as they replenished their shelves after supply chain bottlenecks related to Covid-19 eased.

A technical recession is defined as two consecutive quarters of decline in GDP. But the US does not use this definition and instead relies on a decision made by a group of researchers at the National Bureau of Economic Research based on a wider range of factors.

Even so, two quarters of negative growth in a row could spook markets. Stock futures fell and the two-year Treasury yield fell, moving on interest rate expectations.

The figures come a day after the Federal Reserve raised interest rates 0.75 percentage point as part of an aggressive campaign to curb inflation. High interest rate hikes by the central bank in recent months have started to slow the economy, and market participants are watching closely to see if this rapid tightening will push the US into recession.

Economists say the data is unlikely to change the Fed’s calculations. At a news conference after a policy meeting on Wednesday, Chairman Jay Powell said he did not believe the US was in recession and pointed to strength in the economy, including the labor market.

Evidence of a slowdown has yet to emerge US employment data, which is used by economists to measure whether a country is in recession. Unemployment is steady at 3.6 percent, the lowest level since before the coronavirus pandemic.

“GDP is a measure of economic activity, but it is as complete as it seems. . . the labor market will be the best indicator of whether we are indeed heading into a recession and whether businesses will actually cut back on hiring,” said Gregory Dako, an economist at EY-Parthenon.

“I don’t think GDP printing will or shouldn’t affect the Fed,” said Eric Winograd, an economist at AllianceBernstein.

The Atlanta Fed’s GDPNow forecast projected a 1.2 percent decline in the dynamic estimate of real GDP growth, based on the most current economic data.

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