The U.S. economy shrank for a second straight quarter from April to June, dropping at an annual pace of nine-tenths of a percentage point and by one common measurement pushing the world’s biggest economy into a recession.
The Commerce Department reported the decline in the gross domestic product – the broadest gauge of the American economy – on Thursday. It followed a 1.6% annual drop in the January-to-March period.
Some economists view two successive quarters of declining growth as an indication of a recession, but others say such a declaration is too simple. They are pointing to seemingly contradictory aspects of the U.S. economy – with hundreds of thousands of new jobs being added each month and the unemployment rate at a nearly 50-year low of 3.6%, even as inflation in consumer prices surges at the fastest pace in four decades.
Mark Hamrick, a senior economic analyst at Bankrate.com, said, “We now know that the economy has contracted for two consecutive quarters. It is not entirely clear whether a recession has begun given the continued strength of the job market.”
He said that eventually “the recession question will be answered by the National Bureau of Economic Research. This first attempt to capture economic output in the second quarter should be taken with more than the proverbial grain of salt since there will be revisions.”
The economic report came a day after the U.S. central bank, the Federal Reserve, boosted its benchmark interest rate by three-quarters of a percentage point in an ongoing effort to curb soaring consumer prices. Fed chairman Jerome Powell said “another unusually large increase could be appropriate” at the central bank’s September meeting.
“Recent indicators of spending and production have softened,” the Fed said in announcing the rate increase. “Nonetheless, job gains have been robust in recent months.”
Powell said at a Wednesday news conference, “Our goal is to bring inflation down and have a so-called soft landing, by which I mean a landing that doesn’t require a significant increase in unemployment. We understand that’s going to be quite challenging. It’s gotten more challenging in recent months.”
The slowing U.S. economy, whether officially in a recession or not, also has crucial political implications. Ahead of the Commerce Department report, U.S. President Joe Biden said this week he does not believe the economy is in a recession or headed to one.
But opposition Republicans are certain to cast the economy as in a recession and blame Biden’s economic stewardship ahead of national congressional elections in November when Republicans are hoping to retake control of one or both houses of Congress from the president’s Democratic colleagues.
Thursday’s estimate of the gross domestic product for the April-June quarter is the first of three the government will release over the coming weeks. It marked a sharp weakening from the 5.7% growth the economy achieved last year when the economy rapidly recovered from the effects of the coronavirus pandemic. That was the fastest yearly expansion since 1984.
The quarterly decline included pluses and minuses in the national economy.
Consumer spending, which covers 70% of the U.S. economy, rose 1% on an annualized basis, a marked slowdown from previous quarters. Home construction dropped 14%, while business construction fell 11.7% on an annualized basis and federal government spending declined by 3.2%.