Washington, D.C. – The U.S. economy unexpectedly contracted in the second quarter, with consumer spending growing at its slowest pace in two years and business spending declining, which could fan financial market fears that the economy was already in recession.
The second straight quarterly decline in gross domestic product reported by the Commerce Department on Thursday largely reflected a more moderate pace of inventory accumulation by businesses because of ongoing shortages of motor vehicles.
Slowing consumer spending has also left retailers with little appetite to accumulate more stock.
The back-to-back decline in GDP against the backdrop of aggressive monetary policy tightening by the Federal Reserve could force the U.S. central bank to scale back its massive interest rate increases.
Gross domestic product fell at a 0.9 per cent annualised rate last quarter, the government said in its advance estimate of GDP.
Economists polled by Reuters had forecast GDP rebounding at a 0.5 per cent rate. Estimates ranged from as low as a 2.1 per cent rate of contraction to as high as a 2.0 per cent growth pace. The economy contracted at a 1.6 per cent pace in the first quarter.
The second straight quarterly decline in GDP meets the standard definition of a recession.
But the National Bureau of Economic Research, the official arbiter of recessions in the United States defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators”.
Job growth averaged 456 700 a month in the first half of the year, which is generating strong wage gains. Still, the risks of a downturn have increased.
Home building and house sales have weakened, while business and consumer sentiment have softened in recent months.
U.S. stocks were lower. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.
The White House is vigorously pushing back against the recession chatter as it seeks to calm voters ahead of the November 8 mid-term elections that will decide whether President Joe Biden’s Democratic Party retains control of the U.S. Congress.