The US economy slipped into a technical recession in the second quarter, with data released by the Commerce Department on Thursday showing a contraction in the second three months of the year.
Gross domestic product shrank 0.9% year-on-year in the second quarter, or a 0.2% drop from the previous quarter, the measure used by other major economies. That comes amid first-quarter gross domestic product data showing the US economy shrank 1.6 percent.
Despite the contraction, personal consumption, which offers a sense of the health of the US consumer, rose 1%, a slowdown from 1.8% in the first quarter, but still a sign of strength.
The second-quarter data was driven by weaker business inventory growth. Several retailers reported that their stocks rose unusually quickly last year as they restocked their shelves after supply chain bottlenecks linked to Covid-19 eased.
A technical recession is defined as two consecutive quarters of GDP contraction. However, the US does not use this definition and instead relies on a decision by a group of researchers from the National Bureau of Economic Research based on a broader set of factors.
However, two consecutive quarters of negative growth could spook the markets. Stock market futures were lower and the yield on two-year Treasury notes, 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. Major interest 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 tip the US into recession.
The data is unlikely to change the Fed’s calculations for now, economists say. In his news conference after the policy meeting on Wednesday, Chairman Jay Powell said he does not believe the US is in recession and pointed to the strength of the economy, including the labor market.
Evidence of a slowdown has yet to emerge in US employment data, which is also used by economists to gauge whether a country is in recession. Unemployment is steady at 3.6 percent, the lowest since before the coronavirus pandemic.
“GDP is one measure of economic activity, however complete it may seem. . . the labor market will be the best indicator of whether we are indeed headed for a recession and whether businesses are indeed cutting back on hiring,” said Gregory Dako, an economist at EY-Parthenon.
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“I don’t think the GDP footprint would or should affect the Fed,” said Eric Winograd, an economist at AllianceBernstein.
The Atlanta Federal Reserve’s GDPNow forecast, a dynamic estimate of real GDP growth based on the most recent economic data, predicted a contraction of 1.2 percent.
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