One of the key measures of economic output fell for the second consecutive quarter, raising fears that the United States may enter a recession — or may have begun.
The Commerce Department said, on Thursday, that gross domestic product, adjusted for inflation, fell by 0.2 percent in the second quarter, equivalent 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 one common but unofficial definition, the US economy entered a recession just two years after emerging from the latter.
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 momentum amid rising inflation and higher interest rates. Business investment and construction activity declined in the second quarter after rising in the first. Consumer spending, adjusted for inflation, remained positive but slowed. After-tax income declined after adjusting for inflation.
“We don’t think we’re 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 from the first quarter.”
The slowdown, in and of itself, isn’t necessarily bad news. The Federal Reserve was trying to calm the economy in an effort to tame inflation, and The White House argued The slowdown is part of an inevitable and necessary transition into a period of steady growth after last year’s rapid recovery.
“Judging from historical economic growth last year — and the restoration of all the private sector jobs lost during the pandemic crisis — it is no surprise that the economy is slowing as the Federal Reserve works to bring down inflation,” President Biden said 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, forecasters in recent weeks have become increasingly concerned about the Federal Reserve’s aggressive moves — including Raising interest rates three-quarters of a percentage point Wednesday for the second month in a row – will result in a recession. There are hints that layoffs are increasing and consumers are struggling to keep up with the rapid rise in prices.
“The labor market doesn’t have to turn that much in order for us to see a recession,” said Tim Quinlan, chief economist at Wells Fargo.
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