According to official data released on Thursday, the U.S. economy declined at a 0.6% annual pace from April through June.
This is a little improvement over the previous estimate and suggests that this year’s decline in growth will not be as severe as initially anticipated.
The majority of experts have said that they do not believe the economy is in or about to enter a recession, citing continued robust hiring, low unemployment, and a large number of unfilled positions.
Inflation is still hitting consumers and companies and is close to a four-decade high.
Furthermore, there is a greater chance of an economic “hard landing” as a result of the Federal Reserve’s deliberate effort to curb inflation by rising interest rates.
The nation’s gross domestic product, the most comprehensive indicator of economic production, shrank last quarter, according to the Commerce Department’s revised estimate released on Thursday, but at a slower rate than the 1.6% annual decrease seen from January to March.
The government had previously predicted that the GDP had decreased by 0.9% during the April-June quarter.
Consumer spending, which makes up nearly 70% of all economic activity in the United States, increased last quarter but at a slower rate than in the preceding three months (1.5% annually as opposed to 1.8%).
Government spending and business investment, on the other hand, decreased.
Additionally, inventories fell as companies delayed replenishing their shelves, causing the GDP to decline by 1.8 percentage points.
The housing market suffered from rising interest rates. Construction of homes fell 16.2%.
Multiple signals
The first estimate of gross domestic income, another indicator of economic growth, adds to the conflicting economic signals.
In contrast to its 1.8% gain in the first quarter, GDI grew at a below-average 1.4% rate in the second.
“As a result, the disparity between the GDP and GDI numbers has widened and the two sets of numbers now tell two entirely different stories about the state of the economy.
GDI is 6.4% higher while GDP is 2.6% higher than pre-pandemic levels.”
Senior U.S. economist at Capital Economics Michael Pearce said in a research report. “There has never been a bigger difference between the two.”
According to him, the discrepancy increases the likelihood that the GDP statistics would be revised “significantly higher” in subsequent months.
Fed is still raising rates.
The Fed has increased its benchmark interest rate four times this year in increasingly substantial increments in an effort to reduce inflation.
The central bank is increasing borrowing costs, making it more expensive to get a mortgage, a car loan, or a business loan.
The assumption is that firms and people would borrow less money and spend less, which will help to halt inflation and cool the economy.
The home market in particular has been hurt by the increase in borrowing rates. Both new and existing house sales are falling precipitously, and in July, the rate of home building fell to its lowest level since early last year.
Similar to this, retail sales remained unchanged last month as a result of many people cutting down on their spending due to inflation and increased borrowing rates.
The Federal Reserve is aiming for a “soft landing” under Chair Jerome Powell, in which the economy contracts just enough to halt wage growth and hiring without going into a recession and brings inflation back to the Fed’s 2% annual objective.
However, the Fed is increasing the likelihood that a slump would result from its rate rises by restricting credit even while the economy has slowed.
Consumer confidence has been undermined and economic concern has been stoked by the rise in prices and worry of a recession.
On Friday, Powell will provide his most recent assessment of the state of the economy at a speech in Jackson Hole, Wyoming.
Recent weeks have seen a gradual slowing of inflation pressures due to lower overall inflation measures and a sustained decline in gas prices from their stratospheric highs.
Consumer prices increased by 8.5% over the previous year in July, which is less than the 9.1% increase seen in June. Additionally, prices did not change from June to July on a monthly basis.
Nevertheless, the prices of key commodities, particularly food and rent, have not decreased and continue to put a strain on millions of people.