The US economy shrank between April and June for the second consecutive quarter, contracting 0.9% annually, raising fears of an impending recession, the Commerce Department reported on Thursday.
This drop in Gross Domestic Product—the broadest measure of the economy—followed the 1.6% annual contraction in the first quarter of the year. The fall in GDP in two consecutive quarters constitutes an informal, although not definitive, indicator of a recession.
The report appears at a crucial moment. Consumers and companies are suffering from the effects of strong inflation and higher credit prices. On Wednesday, the Federal Reserve raised its interest rate benchmark by three quarters of a point for the second consecutive time to try to contain the highest inflation of the last four decades.
The Fed is trying to achieve a very difficult “soft landing”: a brake on the economy that manages to contain the unbridled rise in prices without triggering a recession.
Fed Chairman Jerome Powell and many economists have said that while the economy is weakening, it has not slipped into a recession. They point in particular to the robust labor market, with 11 million job openings and an unusually low unemployment rate of 3.6%, to suggest that a recession, if it comes, is still a long way off.
The calculation of GDP for the April-June quarter, the first of three published by the government, marks a drastic drop compared to last year’s 5.7% growth, the largest expansion since 1984, a reflection of the vigor with which the economy rebounded after of the brief but brutal recession caused by the pandemic in 2020.
But since then, the combination of rising prices and the cost of credit has had an impact. The Labor Department’s consumer price index rose 9.1% in June from a year earlier, at a pace not seen since 1981. And despite widespread wage increases, prices are rising faster than wages, In June, the inflation-adjusted average hourly wage fell 3.6% from a year earlier, the 15th consecutive annual decline.
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