WASHINGTON (AP) — Battered by soaring consumer prices and rising interest rates, the U.S. economy contracted at an annual rate of 0.6% from April through June, the government, unchanged from its previous estimate for the second quarter.
It marked the second consecutive quarter of economic contraction, an informal rule of thumb for a recession. Most economists, citing a strong and resilient US labor market, believe the world’s largest economy is not yet in recession. But they fear it could be heading for such a shift as the Federal Reserve raises interest rates to fight inflation.
Consumer spending rose at an annual rate of 2%, but this gain was offset by a decline in business inventories and housing investment.
The US economy has sent mixed signals this year. Gross domestic product, or GDP, shrank in the first half of 2022. But the labor market remained solid. Employers are creating an average of 438,000 jobs a month this year, on track to become the second-best year for hiring (behind 2021) in government records dating back to 1940. Unemployment is 3.7%, a low against to historical standards. There are currently about two jobs for every unemployed American.
But the Fed raised interest rates five times this year – most recently on September 21 – to rein in consumer prices, which rose 8.3% in August from a year earlier despite falling gasoline prices. Higher borrowing costs increase the risk of a recession and higher unemployment. “We need to put inflation behind us,” Fed Chairman Jerome Powell said last week. “I wish there was a painless way to do this. There isn’t.″
The risk of recession — along with persistently and painfully high prices — is a hurdle for President Joe Biden’s Democrats as they try to retain control of Congress in November’s midterm elections. However, lower gasoline prices have improved consumer sentiment over the past two months.
Thursday’s report was the Commerce Department’s third and final view on second-quarter growth. The first snapshot of the performance of the economy from July to September is published on October 27. Economists on average expect GDP to return to growth in the third quarter, at a modest annual pace of 1.5%, according to a survey by data firm FactSet. .
Commerce also released revised figures for previous years’ GDP on Thursday. The update showed that the economy fared slightly better in 2020 and 2021 than previously reported. GDP increased by 5.9% last year, against 5.7% previously; and, pounded by the coronavirus pandemic, it fell 2.8% in 2020, not as bad as the 3.4% previously recorded.
GDP remained unchanged for 2018 (2.9%) and 2019 (2.3%). Growth for 2017 has been revised down slightly from 2.3% to 2.2%.