US economy shrinks in second quarter, signaling unofficial start of recession | US economy

The US economy It has shrunk again in the past three months, informally signaling the start of a recession.

The Commerce Department announced Thursday that gross domestic product – a broad measure of the prices of goods and services – declined at an annual rate of 0.9% in the second quarter after declining at an annual rate of 1.6% in the first three months. .

The bad news will be a fatal blow to Biden administration As it prepares for a challenging midterm election season. White House officials have tried to cool off talk of a recession, arguing that many parts of the economy are still strong.

The growth rate stands in marked contrast to the strong annual increase of 6.9% in GDP recorded in the last quarter of 2021 when the economy returned to a state of lockdown after the Covid lockdown.

The rapid pace of growth contributed to rising inflation – now at its highest level in 40 years – and the Federal Reserve’s decision to raise interest rates sharply in order to bring prices down.

The changing economic environment was reflected in the GDP report. Consumer spending – the biggest driver of the economy – slowed during the quarter but remained positive, rising 1% year over year. Fixed residential investment, or home construction, is down 14% year over year, and slowing business inventories, goods produced but not yet sold by businesses, have lowered the GDP figure.

Two quarters of negative GDP growth is widely seen as a sign that the economy is entering a recession. But the National Bureau of Economic Research (NBER) is the official arbiter of when recessions begin and end. While the GDP numbers will play into the final judgment of the National Bureau of Economic Research, it also looks at a wide range of economic factors, including the labor market, and is unlikely to make a decision soon.

Andrew Hunter, chief US economist at Capital economics. “However, the details show that high rates and high inflation are weighing on core demand, and we only expect a slight rebound in economic growth during the second half of the year.”

Meanwhile, pressure remains on the Biden administration. Consumer confidence surveys Declining as recession fears grow and Joe Biden’s public and economic approval Survey numbers They are at the lowest levels of his presidency.

“It is no surprise that the economy is slowing while the Federal Reserve works to bring down inflation,” Biden said in a statement. “But even as we face historic global challenges, we are on the right track and through this transition will be stronger and safer.”

Republicans responded by saying that the report shows that “the reckless economic policies of the Democrats are destroying our economy.”

The latest GDP numbers came a day after the Federal Reserve made another announcement Three quarters of a percentage point An increase in benchmark interest rates as they struggle to tame inflation.

Prices soared in Annual rate 9.1% In the year to June, driven by rising costs for fuel, food and shelter.

While parts of the US economy remain strong – most notably the job market – the Covid pandemic continues to wreak havoc on global supplies, and the war in Ukraine has sent energy prices soaring.

The confusing economic outlook led to a sell-off in stock markets around the world and led some economists to predict an upcoming recession. Nearly 70% of the top academic economists In a poll conducted by the Financial Times, He predicted last month that the US economy would enter a recession next year.

Federal Reserve Chairman Jerome Powell said on Wednesday that he does not believe the United States is now in a recession. But he said the Fed was ready to continue raising interest rates in order to bring rates down again, and that such a move was bound to slow the economy and affect the labor market. “Price stability is what makes the entire economy work,” Powell said.