The decline the Commerce Department reported Thursday in gross domestic product — the broadest measure of the economy — followed an annual decline of 1.6 percent from January to March. Consecutive quarters of falling GDP are an informal, though not definitive, indicator of a recession. The report comes at a critical time. Consumers and businesses are struggling under the weight of punishing inflation and higher borrowing costs. On Wednesday, the U.S. Federal Reserve raised its key interest rate by as much as three-quarters of a point for the second time in a row in its push to combat the worst burst of inflation in four decades. The Fed is hoping to pull off an extremely difficult “soft landing”: An economic slowdown that manages to rein in soaring prices without triggering a recession. Fed Chairman Jerome Powell and many economists have said that while the economy is showing some weakness, they doubt it is in a recession. Many of them point, in particular, to a still-strong labor market, with 11 million jobs and an unusually low unemployment rate of 3.6%, suggesting that a recession, if it happens, is still a long way off. WATCHES | Why June’s jobs numbers have some economists worried about a recession:
Job losses in June raise recession concerns
Canada reported its first job losses since January, raising concerns about a looming recession even with a growing economy. Thursday’s first of three government estimates of GDP for the April-June quarter marks a sharp slowdown from the 5.7 percent growth the economy achieved last year. That was it fastest calendar year expansion since 1984reflecting how sharply the economy roared from the brief but brutal pandemic recession of 2020. But since then, the combination of rising prices and higher borrowing costs has taken its toll. Of the Labor Department The consumer price index jumped 9.1% in June from a year earlier, a pace not matched since 1981. And despite widespread wage increases, prices are rising faster than wages. In June, average hourly earnings, adjusted for inflation, fell 3.6% from a year earlier, marking the 15th consecutive year-over-year decline.
Uncertain times
Bursting inflation and fears of a recession have eroded consumer confidence and fueled public concern about the economy, which is sending disappointingly mixed messages. And with November’s midterm elections looming, American discontent has dented President Joe Biden’s approval ratings and raised the possibility that Democrats will lose control of the House and Senate. Consumer spending continues to rise. But Americans are losing confidence: their assessment of economic conditions six months from now has hit its lowest point since 2013, according to the Conference Board, a research group. Recession risks are rising as Fed policymakers have continued a campaign of rate hikes that will likely extend into 2023. The Fed hikes have already led to higher interest rates on credit cards and auto loans and a doubling of the average 30-year interest rate fixed mortgage last year, at 5.5. Home sales, which are particularly sensitive to changes in interest rates, have fallen. Even as the economy registers its second straight quarter of negative GDP, many economists do not see it as a recession. The most widely accepted definition of a recession is that set forth by the National Bureau of Economic Research, a group of economists whose Business Cycle Advisory Committee defines a recession as “a significant decline in economic activity that is spread throughout the economy and lasts longer than from a few months.” The committee evaluates a number of factors before publicly declaring the death of an economic expansion and the birth of a recession — and often does so well after the fact. Walmart, the nation’s largest retailer, cut its earnings outlook this week, saying higher gas and food prices are forcing shoppers to spend less on many discretionary items such as new clothes. Production is also slowing. America’s factories have enjoyed 25 straight months of expansion, according to the Institute for Supply Management’s manufacturing index, although supply chain bottlenecks have made it difficult for factories to fulfill orders. But now, the factory boom is showing signs of strain. The ISM index fell last month to its lowest level in two years. New orders declined. Factory hiring fell for the second month in a row.
