The U.S. economy shrank from April through June, the second straight quarterly drop, contracting at a 0.9% annual pace and raising fears that the nation may be approaching a recession.
The decline that the Commerce Department reported this morning in the gross domestic product—the broadest gauge of the economy—followed a 1.6% annual drop from January through March. Consecutive quarters of falling GDP constitute one informal, though not definitive, indicator of a recession.
The GDP report for last quarter pointed to weakness across the economy: Consumer spending slowed as Americans bought fewer goods, business investment fell, and Inventories tumbled as businesses slowed their restocking of shelves, shedding 2 percentage points from GDP.
Higher interest rates, a consequence of the Federal Reserve’s series of rate hikes, clobbered home construction, which shrank at a 14% annual rate. Government spending dropped, too.
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 interest rate by a sizable three-quarters of a point for a second straight time in its push to conquer the worst inflation outbreak in four decades.
“The back-to-back contraction of GDP will feed the debate about whether the U.S. is in, or soon headed for, a recession,” says Sal Guatieri, senior economist at BMO Capital Markets. “The fact that the economy created 2.7 million payrolls in the first half of the year would seem to argue against an official recession call for now.”Â
This morning’s first of three government estimates of GDP for the April-June quarter marks a drastic weakening from the 5.7% growth the economy achieved last year. That was the fastest calendar-year expansion since 1984, reflecting how vigorously the economy roared back from the brief but brutal pandemic recession of 2020. Read more.Â
