The US enters a technical recession after a slowdown in growth in the second quarter

The US enters a technical recession after a slowdown in growth in the second quarter
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The US economy slipped into a technical recession in the second quarter, with data released by the Commerce Department on Thursday showing contraction for the second three months of the year.

Gross domestic product fell 0.9 percent on an annualized basis in the second quarter, or 0.2 percent quarter-on-quarter — the measure used by other major economies. This follows from the first quarter gross domestic product data showing it US economy down 1.6 percent.

Despite the decline, private consumption, which measures the health of US consumers, grew 1 percent, slowing down from 1.8 percent in the first quarter but still showing strength.

Second quarter data was led by weaker corporate inventory growth. Several retailers have reported that their stock levels have grown at an unusually fast pace over the past year as they restocked their shelves after Covid-19-related supply chain shortages eased.

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

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

The numbers come the day after the Federal Reserve increased interest rates by 0.75 percentage points as part of an aggressive campaign to curb inflation. The central bank’s sharp hikes in interest rates 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.

The data is unlikely to change the Fed’s calculus for now, economists say. In his press briefing after Wednesday’s policy meeting, Chairman Jay Powell said he didn’t think the US was in recession, noting the strength of the economy, including the job market.

Evidence of a slowdown is still pending US employment data, which is also used by economists to estimate whether a country is in recession. Unemployment is constant at 3.6 percent, the lowest level since the corona pandemic.

“GDP is a measure of economic activity, but it is as complete as it might seem. . . The job market will be the best indicator of whether we really are headed for a recession and whether companies are really hiring,” said Gregory Daco, economist at EY-Parthenon.

“I don’t think GDP pressure would or should affect the Fed,” said Eric Winograd, economist at AllianceBernstein.

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

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