US enters technical recession after second quarter growth contraction

US enters technical recession after second quarter growth contraction

The US economy slipped into a technical recession in the second quarter, with data released Thursday by the Commerce Department showing a contraction in the second quarter of the year.

Gross domestic product fell 0.9% on an annual basis in the second quarter, or 0.2% from the previous quarter, the measure used by other major economies. This comes on the heels of first-quarter gross domestic product data showing the US economy shrank by 1.6 percent.

Despite the contraction, personal consumption, which provides a glimpse into the health of the American consumer, grew 1 percent, a slowdown from 1.8 percent in the first quarter, but still evidence of strength.

The second quarter data was led by weaker business inventory growth. Several retailers have reported that their inventories grew unusually quickly last year as they restocked their shelves after supply chain bottlenecks related to Covid-19 eased.

A technical recession is defined as two consecutive quarters of GDP contraction. However, the United States does not use this definition and relies on a determination by a group of researchers at the National Bureau of Economic Research, based on a broader range of factors.

However, two quarters of negative growth in a row could spook the markets. Stock futures were lower and the two-year Treasury yield, which moves with interest rate expectations, fell.

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

The data is unlikely to change the Fed’s calculus for now, economists say. In his press conference after Wednesday’s policy meeting, Chairman Jay Powell said he did not believe the US was in recession and pointed to the strength of the economy, including the labor market.

Evidence of a slowdown has yet to appear in US employment data, which economists also use to gauge whether a country is in recession. Unemployment remains steady at 3.6%, the lowest it has been since before the coronavirus pandemic.

“GDP is a measure of economic activity, but as comprehensive as it may seem . . . the labor market is going to be the best indicator of whether we’re really heading into a recession and whether businesses are really cutting back on hiring,” Gregory said. Daco, economist at EY-Parthenon.

“I don’t think the GDP print will or should influence the Fed,” said Eric Winograd, an economist at AllianceBernstein.

The Atlanta Fed’s GDPNow forecast, a dynamic estimate of real GDP growth based on the most recent economic data, had forecast a contraction of 1.2 percent.



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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!