The US economy falls at an annual rate of 0.6% from April to June

WASHINGTON — Hit by rising consumer prices and rising interest rates, the US economy shrank at an annual rate of 0.6% between April and June, the government announced Thursday, without changes from its prior second quarter estimate.

It marked the second consecutive quarter of economic contraction, an informal rule of thumb for a recession. Citing a strong and resilient US labor market, most economists believe the world’s largest economy is not yet in a recession. But they worry it could target one as the Federal Reserve raises interest rates to fight inflation.

Consumer spending grew at a 2% annual rate, but that gain was offset by a drop in business inventories and home investment.

The US economy has been sending mixed signals this year. Gross domestic product, or GDP, fell in the first half of 2022. But the labor market has remained strong. Employers are adding an average of 438,000 jobs per month this year, on track to be the second-best year for hiring (after 2021) in government records dating back to 1940. Unemployment is at 3.7%, low by standards historical. There are currently about two jobs for every unemployed American.

But the Federal Reserve has raised interest rates five times this year, most recently on September 21, to rein in consumer prices, which rose 8.3% in August from a year earlier despite plummeting. of gasoline prices. Higher borrowing costs increase the risk of a recession and higher unemployment. “We have to put inflation behind us,” Fed Chairman Jerome Powell said last week. “I wish there was a painless way to do it. There isn’t.”

The risk of recession, coupled with persistently and painfully high prices, poses a hurdle for President Joe Biden’s Democrats as they seek to retain control of Congress in November’s midterm elections. However, falls in gasoline prices have improved consumer sentiment in the last two months.

Thursday’s report was the Commerce Department’s third and final release on second-quarter growth. The first look at the performance of the economy between July and September will be published on October 27. Economists, on average, expect GDP to return to growth in the third quarter, expanding at a modest 1.5% annual pace, according to a survey by data firm FactSet. .

The Commerce Department also released revised GDP figures for recent years on Thursday. The update showed that the economy performed slightly better in 2020 and 2021 than previously reported. GDP increased 5.9% last year, compared to 5.7% previously reported; and, hit by the coronavirus pandemic, it contracted 2.8% in 2020, not as much as the 3.4% recorded previously.

GDP remained unchanged for 2018 (2.9%) and 2019 (2.3%). Growth for 2017 was slightly lowered, from 2.3% to 2.2%.

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