GDP flashes recession warning signal: Economy shrank 0.9% in quarter as experts warn worse to come

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The U.S. economy contracted unexpectedly for the second quarter in a row this year, according to data released Wednesday, signaling the start of a technical recession, even as economists predict signs of a slowdown will only intensify in the coming quarters, leading to a decline in the economy. will likely push the government to officially declare that the economy is in recession.

Key facts

The US economy shrank by 0.9% year-on-year in the second quarter, despite average expectations calling for a 0.3% increase. Economic analysis reported in an initial estimate released Thursday.

The government blamed the worse-than-expected figure on the decline in housing investment (or home buying), federal spending and corporate inventories, but said an increase in exports and spending helped improve economic activity over the coming years. compared to the decline of 1.6% in the previous quarter.

Two consecutive quarters of negative GDP growth make up one working definition of recession, Wells Fargo senior economist Tim Quinlan says, but it’s not the official one: Instead, the final decision rests with the National Bureau of Economic Research, which defines a recession as ” a significant decline in economic activity” lasting “more than a few months”.

Quinlan points to four of the six factors NBER relies on to declare a recession — manufacturing, income, employment and spending — continued to signal growth through May, but notes that manufacturing is “losing strength” and income gains struggle to keep up with inflation, while unemployment claims rise and consumers start to spend less.

Like other economists, Quinlan isn’t convinced last quarter’s economic indicators were indicative of a current recession, but he warns that the economy is slowing and “it’s starting to feel like [entering one]

is only a matter of time.”

The data comes a day after Federal Reserve Chairman Jerome Powell downplayed the importance of the early GDP figures, which could be revised “significantly”, saying that “it doesn’t make sense that the economy would be in a recession.” given the strength of the labor market in the first half of the year, employing some 2.7 million people and unemployment remaining close to its pre-pandemic low.

Crucial Quote

“We don’t think the economy is in recession right now, but if our forecast is correct, this isn’t so much a headscarf as a harbinger of worse,” said Quinlan, arguing negative GDP growth. in the first half of the year is probably not the result of weak underlying demand, but of “one-off” volatile factors such as net exports and inventories. “We expect the loud wailing of a real recession to begin early next year,” he adds.

What to watch out for

The government will update its estimate, based on more complete data, on August 25. A third and final figure will then be released in September.

Tangent

Shares fell immediately after the economic release, with the S&P 500 falling about 0.3% at 8:40 a.m. ET, while the tech-heavy Nasdaq fell 0.7%.

This is a story in development. Come back for updates.

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