The US economy shrank from April to June for the second straight quarter, shrinking at an annual rate of 0.9 percent and raising fears that the nation was heading for a recession.
The fall the US Commerce Department reported on Thursday (Friday AEST) in gross domestic product, the broadest gauge of the economy, followed a 1.6 per cent annual drop from January to March. Consecutive quarters of falling GDP are an informal, though not definitive, indicator of a recession.
The GDP report for the last quarter pointed to the weakness of the US economy, the largest in the world. Consumer spending slowed as Americans bought fewer goods. Business investment fell. Inventories fell as companies slowed their restocking, shedding 2 percentage points of GDP.
The US economy contracted for the second quarter in a row, prompting fears of a recession. (AP)
Rising borrowing rates, a result of the Federal Reserve’s series of rate hikes, weighed on homebuilding, which fell to an annual rate of 14 percent. Public spending also fell.
The report comes at a critical time. Consumers and businesses have been struggling under the weight of punishing inflation and higher borrowing costs. On Wednesday, the Fed raised its benchmark rate by three-quarters of a point for the second consecutive time in its push to conquer the worst outbreak of inflation in four decades.
The Fed hopes to achieve a notoriously difficult “soft landing” — an economic slowdown that manages to curb skyrocketing prices without triggering a recession.
Apart from the United States, the global economy as a whole is also struggling with high inflation and weakened growth, especially after Russia’s invasion of Ukraine sent energy and food prices soaring. Europe, heavily dependent on Russian natural gas, appears particularly vulnerable to a recession.
In the US, rising inflation and fears of a recession have eroded consumer confidence and stoked anxiety about the economy, which is sending frustratingly mixed signals. And with November’s midterm elections approaching, Americans’ discontent has lowered President Joe Biden’s public approval ratings and could increase the likelihood that Democrats will lose control of the House and Senate.
Major US retailers, such as Walmart Corporation, have experienced sluggish sales over the past six months. (AP)
Fed Chairman Jerome Powell and many economists have said that while the economy is weakening, they doubt it is in recession.
Many of them point, in particular, to a still-robust labor market, with 11 million job openings and an unusually low 3.6 percent unemployment rate, to suggest that a recession, if it occurs, still it’s not here
Biden played down the news, pointing to continued low unemployment and strong hiring.
“Coming off of last year’s historic economic growth, and recovering all the private sector jobs lost during the pandemic crisis, it’s no surprise that the economy is slowing as the Federal Reserve acts to reduce inflation,” the president said in a statement. .
“But even as we face historic global challenges, we are on the right track and will come through this transition stronger and more confident.”
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