US enters technical recession after growth cuts in Q2

The US economy fell into a technical recession in the second quarter, and data released by the Commerce Department on Thursday showed contraction for the second three months of the year.

Gross domestic product fell 0.9% year-on-year in the second quarter, or 0.2% quarter-on-quarter, a figure used by other major economies. This happened after the publication of data on gross domestic product for the first quarter, US economy will decrease by 1.6%.

Despite the contraction, personal consumption, which gives an indication of the health of US consumers, rose 1%, slowing down from 1.8% in the first quarter but still showing strength.

The second quarter data was driven by weaker inventory growth. Several retailers reported that their inventory grew unusually fast last year as they replenished their shelves after clearing Covid-19-related supply chain bottlenecks.

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

Nevertheless, two quarters of negative growth in a row may haunt the markets. Stock market futures were lower and two-year Treasury yields, which fluctuate with interest rate expectations, fell.

The numbers come the day after the Fed. higher interest rates by 0.75 percentage points as part of an aggressive campaign to curb inflation. The significant rate hikes implemented by the central bank in recent months have begun to slow the economy, and market participants are watching closely to see if this rapid rate tightening will lead to a recession in the US.

Economists say the data is unlikely to change the Fed’s calculations so far. At his press conference after Wednesday’s political meeting, Chairman Jay Powell said he did not believe in a recession in the US and pointed to a strengthening economy, including the labor market.

No evidence of slowdown yet US employment data, which is also used by economists to assess whether a country is in a recession. Unemployment is stable at 3.6%, the lowest since the start of the coronavirus pandemic.

“GDP is one measure of economic activity, but as complete as it may seem. . . the labor market will be the best indicator of whether we are indeed heading for a recession and whether businesses are indeed cutting hiring,” said Gregory Dako, economist at EY-Parthenon.

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

The Federal Reserve Bank of Atlanta’s GDPNow Forecast, a dynamic estimate of real GDP growth based on the most recent economic data, projects a contraction of 1.2%.