US economy contracts in second quarter, but underlying figures show no recession

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The U.S. economy shrank at a more moderate pace than initially thought in the second quarter as consumer spending mitigated some of the drag from a slower build-up phase. inventories, allaying fears that the country is in a recession.

This was underlined by a report from the Commerce Department on Thursday, which also showed that the economy grew steadily last quarter when measured from the point of view of income, which dovetails with recent strong data on the labor market, sales retail and industrial production.

Gross domestic product contracted at an annualized rate of 0.6% last quarter, the Commerce Department said Thursday in its second estimate of GDP, which revised an earlier estimate of a 0.9% drop. The economy had shrunk 1.6% in the first quarter.

Economists polled by Reuters had expected GDP to be revised slightly to show output falling at a rate of 0.8%.

While two consecutive quarterly declines in GDP meet the standard definition of a technical recession, broader measures of economic activity suggest a slow pace of expansion rather than a recession.

Core retail sales were much stronger than initially reported in May, and that strength persisted through June and July. Industrial production hit an all-time high in July, while business spending on equipment was strong. The labor market continues to produce jobs at a fast pace.

An alternative measure of growth, gross national income, or GNI, rose 1.4% in the second quarter. The RN, which measures the results of the economy from the point of view of income, had grown at a rate of 1.8% in the first quarter.

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The average of GDP and GNI, also called gross domestic income, increased at a rate of 0.4% in the April-June period, compared to 0.1% in the first quarter.

The income side of growth was driven by strong corporate earnings and rising wages in the context of a tight supply labor market.

National after-tax earnings, without valuation adjustments for inventories and capital consumption, conceptually more similar to S&P 500 earnings , rose to $284.9 billion, or 10.4%, following 1.0% growth. in the January-March period.

Earnings were 11.9% higher than a year ago.


The economy remains on solid ground. Core retail sales were much stronger than reported in May, and that strength persisted through June and July. Industrial production hit a record in July and business spending on equipment was strong.

In addition, the labor market continues to generate jobs at a good pace.

The National Bureau of Economic Research, the official arbiter of recessions in the United States, defines a recession as “a significant decline in economic activity that spreads throughout the economy, lasting more than a few months, usually visible in output , employment, real income, and other indicators”.

However, the risk of a recession has increased as the Federal Reserve aggressively raises interest rates to cool demand in order to curb inflation, putting pressure on both business and consumer confidence. The US central bank has raised its policy rate by 225 basis points since March.

Fed Chairman Jerome Powell’s speech on Friday at the annual Jackson Hole world central banking conference in Wyoming could shed more light on whether the central bank can engineer an economic slowdown without triggering a recession.

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The labor market is a key piece of that puzzle. Although interest rate-sensitive industries such as housing and technology are laying off workers, broad-based job cuts have yet to materialize, leaving the overall job market tight.

Another report, from the Labor Department, showed on Thursday that initial claims for state jobless benefits fell by 2,000 to a seasonally adjusted level of 243,000 for the week ending Aug. 20.

The number of people receiving benefits after an initial week of aid fell by 19,000 to 1.415 million during the week ending Aug. 13. So-called continuing orders, an indicator of hiring, covered the week during which the government surveyed households to find out the unemployment rate for August.

The jobless rate dipped to a pre-pandemic low of 3.5% in July from 3.6% in June. There were 10.7 million job openings at the end of June, or 1.8 for every unemployed worker.

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