Inflation: US economy shrinks 0.9% in the second quarter

Inflation: US economy shrinks 0.9% in the second quarter

The US economy shrank between April and June for the second consecutive quarter, contracting 0.9% annually, raising fears of an imminent recession, the Commerce Department reported 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 drop in GDP in two consecutive quarters constitutes an informal, although not definitive, indicator of recession.

The report appears at a crucial moment. Consumers and companies suffer the effects of a strong inflation and rising credit. On Wednesday, the Federal Reserve raised its benchmark interest rate by three-quarters of a point for the second time in a row to try to contain the highest inflation in 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 GDP calculation 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, reflecting the vigor with which the economy rebounded after the recession, brief but brutal, caused by the pandemic in 2020.

Since then, the combination of rising prices and the cost of credit has caused an impact.

The The Labor Department’s consumer price index rose 9.1% in June, compared to the previous year, at a rate not seen since 1981. And despite general wage increases, prices rise faster than wages. In June, the inflation-adjusted average hourly wage fell 3.6% from a year earlier, the 15th consecutive annual decline.

Ben Oakley
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