The US economy contracted at an annualized rate of 0.6 percent from April to June, a more moderate contraction than originally expected, but another sign that the economy is struggling.
In its revised estimate Thursday, the Commerce Department said gross domestic product contracted by 0.6 percent year-on-year in the most recent quarter, instead of the previously estimated 0.9 percent decline.
Revised numbers confirmed an economic contraction for the second consecutive quarter, an unofficial sign of a recession — but President Joe Biden continues to insist the economy is strong even as a downturn looms.
Although the job market is strong, high inflation has hurt consumers and increased the risk of a recession as the Federal Reserve aggressively raises interest rates to cool demand.
Revised figures showed that the US economy contracted at an annual rate of 0.6 percent from April through June, a more moderate contraction than originally expected.
Inflation has forced Americans to delay some nonessential purchases as they spend more each month on essentials like groceries and gas, stunting growth.
While two consecutive quarterly declines in GDP meet one definition of a technical recession, other measures of economic activity point to a slowing pace of expansion rather than a true decline.
The revised GDP estimate reflects a sharp pick-up in consumer spending figures, paring some of the drawdown from a slower pace of inventory build-up.
Underlying retail sales were much stronger than initially reported in May, and that strength continued through June and July.
Industrial production rose to a record high in July, while business spending on equipment was strong. The labor market continues to create jobs at a rapid clip.
Pointing to the still-strong job market and other leading indicators, President Biden is adamant that the economy has not entered a recession, and most economists agree with him.
Even as the economy contracted during the first half of this year, employers added 2.7 million jobs — more than in most years before the pandemic hit.
In July, the economy added more than half a million additional jobs, and the unemployment rate fell to 3.5 percent, the lowest level in half a century.
In the history of the United States, there has never been a recession that was not marked by a rapid rise in unemployment, which makes the current economic situation baffling even to experts.
The risk of a recession increased as the Federal Reserve aggressively raised interest rates to calm demand in order to curb inflation
In its first revision Thursday, the Commerce Department said gross domestic product contracted 0.6 percent year-on-year in the fourth quarter.
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, and typically visible in production, employment, real income, and other indicators.”
But the risk of a recession increased as the Federal Reserve aggressively raised interest rates to calm demand in order to curb inflation, souring business and consumer sentiment.
The US central bank has raised interest rates by 225 basis points since March, when the rate was close to zero.
Federal Reserve Chairman Jerome Powell’s speech Friday at the annual Jackson Hole Conference of Global Central Banks in Wyoming could shed more light on whether the US central bank can engineer an economic slowdown without causing a recession.
The job market is a key piece of this puzzle. Although rate-sensitive industries like housing and technology are laying off workers, large-scale job cuts have yet to materialize, keeping the overall job market tight.
A separate report from the Labor Department on Thursday showed that initial claims for state unemployment benefits fell by 2,000 to a seasonally adjusted 243,000 for the week ending Aug. 20.
Claims have risen around 250,000 since reaching an eight-month high of 261,000 in mid-July.
A separate report from the Labor Department on Thursday showed that initial jobless claims fell 2,000 to a seasonally adjusted 243,000 for the week ending Aug. 20.
Even as the economy contracted during the first half of this year, employers added 2.7 million jobs — more than in most entire years before the pandemic hit.
The number of people receiving benefits after an initial week of aid fell from 19,000 to 1.415 million during the week ending Aug. 13.
The so-called Continuing Claims, a proxy for employment, covered the week during which the government surveyed households for the unemployment rate in August.
The unemployment rate fell to a pre-pandemic low of 3.5 percent in July from 3.6 percent in June.
There were 10.7 million jobs at the end of June, with 1.8 opportunities for every unemployed worker.
While most economists — and Federal Reserve Chairman Jerome Powell — have said they don’t think the economy is in a recession, some analysts still expect a downturn to begin later this year or next.
Either way, inflation remains near a four-decade high, even though gas costs and other prices have fallen in recent weeks.
Inflation remains so high that despite the increases many have received, rising wages have failed to keep pace with rising prices.
Exacerbating these pressures, the Fed is raising interest rates at the fastest pace since the early 1980s, inflating borrowing costs for homes, cars and credit card purchases.
As a result, regardless of whether or not the recession has officially started, many Americans have the economy screwed up and are feeling the pain in their monthly budgets.