(Kitco News) – It may not be an official recession yet, but the US economy contracted for the second straight quarter.
On Thursday, the Commerce Department said in an advanced reading that U.S. gross domestic product fell 0.9 percent in the second quarter, missing market estimates for a 0.4 percent increase.
“The decline in real GDP reflected declines in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment that were partially offset by increases in exports and personal spending. consumption,” the report said.
The drop in economic activity comes as US GDP shrank 1.6% in the first quarter.
The gold market is making steady gains after the latest financial report. August gold futures last traded at $1,741.50 an ounce, up 1.32% on the day.
Officially the National Bureau of Economic Research (NBER) is the agency that would officially declare a recession, which usually happens after months of research and debate. However, the traditional definition is when an economy contracts for two consecutive quarters.
Analysts said a U.S. recession would be positive for gold as it could force the Federal Reserve to slow the pace of rate hikes at a time when inflation remains stubbornly high.
However, not all economists expect the Federal Reserve to relax its aggressive stance on raising interest rates.
Andrew Hunter, senior US economist at Capital Economics, said inflation remains an important issue for the US central bank to address.
“Overall, the evidence confirms that underlying growth has slowed sharply, but with labor market conditions remaining firm and inflation very high, this will not persuade the Fed to withdraw its plans to tighten,” he said.
According to market analysts, the report showed that inflation has a significant impact on economic growth. The report said the quarter’s GDP price index rose 8.7 percent, up from 8.2 in the first quarter. Economists had expected an increase of 7.9%.
“The failure appears to be largely due to higher inflation dragging down real growth. The deflator at 8.9% took a full percentage point off the headline compared to what was expected,” said Adam Button, head of currency strategist at Forexlive.com.
The report also noted that personal consumption continued to decline, rising 1.1% in the second quarter from 1.8% in the first quarter.
The report also showed that US trade is starting to recover. Exports rose 18% in the second quarter while imports rose 3.1%.
However, rising interest rates affect investment spending, especially by consumers. The report said home investment fell 14 percent in the second quarter, from a 0.4 percent rise in the first quarter.
On the business side, investment in equipment fell by 2.7%.
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