HomeBusinessU.S. economy shrinks again in second quarter, reviving recession fears

U.S. economy shrinks again in second quarter, reviving recession fears

The U.S. economy shrank again for a second straight quarter, at a 0.9 percent annualized rate, which has often signaled a recession.

The new figures, released Thursday by the Bureau of Economic Analysis, come at a tumultuous time for the economy, and economists disagree on the likelihood of a full-fledged economic slump.

Inflation has been at 40-year highs for several months, home sales are weakening and even the-red hot labor market is beginning to show cracks. Broader worries about war in Ukraine, the global financial outlook and aggressive interest-rate hikes have many economists predicting a recession in the next year.

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“The numbers are baffling right now — we just don’t normally see declining GDP and rising employment,” said Betsey Stevenson, an economics professor at the University of Michigan and research associate at the National Bureau of Economic Research. “Employment is still growing. Consumer spending has not taken much of a hit. Households have stronger balance sheets than we normally have. Even with a negative number in the second quarter, it’s going to take some serious thought to figure out whether that’s really enough to say that we’re in a recession.”

Mixed messages on the economy raise questions about recession risks

The U.S. economy unexpectedly slowed by an annualized rate of 1.6 percent in the first three months of the year, largely because of a mismatch in trade — with the United States importing far more than it was exporting — and a drop in inventory purchases by businesses that were still flush with leftover goods from the holidays.

Some of the signs of a slow down in economic growth are by design, thanks to interest rate hikes aimed at cooling down the economy. The Federal Reserve again raised interest rates on Wednesday, this time by three-quarters of a percentage point — an unusually aggressive hike — in hopes of curbing inflation, which is up 9.1 percent in the past year.

The Fed’s interest rate hikes, which began in March, are already beginning to cool demand in certain parts of the economy. On Wednesday, Fed Chair Jerome H. Powell pointed to a number of data points — including slower growth in consumer spending, weakening demand for housing, and lower business investments — as signs that the central bank’s efforts are working.

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Fed hikes rates by three-quarters of a percentage point to fight inflation

But, he added, it’s getting tougher to calm the economy without sending it into a tailspin.

“Our goal is to bring inflation down and have a so-called soft landing, by which I mean a landing that doesn’t require a significant increase in unemployment,” Powell said in a Wednesday news conference. “We understand that’s going to be quite challenging. It’s gotten more challenging in recent months.”

Still, most economists expect the U.S. economy will end the year with growth — albeit at a much slower pace than the 5.7 percent gain it notched last year. Lydia Boussour, lead U.S. economist at Oxford Economics, for example, expects economic growth to slow to 1.9 percent this year and 1.1 percent in 2023.

“We are expecting the economy to slow quite sharply,” she said. “The key question is: What happens in the second half of the year and where does that leave the economy?”

The job market is beginning to show cracks

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The White House has pushed back against concerns that the economy may be slowing, with senior officials pointing to a strong labor market as a sign that the recovery remains on track.

“My hope is we go from this rapid growth to steady growth, so we’ll see some coming down,” President Biden said Monday after a virtual meeting on semiconductor chips. “But …God willing, I don’t think we’re going to see a recession.”

Businesses and households, which are already struggling to deal with soaring prices, say looming economic uncertainty has made it difficult to make long-term plans. Some families are putting off big-ticket purchases, while employers say they are rethinking hiring plans and bracing for a broader pullback in spending.

Walmart this week slashed its profit expectations for the year, causing its stock price to drop nearly 9 percent. The country’s largest retailer, considered a bellwether for the industry, said it will have to mark down products more heavily than expected because higher gas and grocery costs are forcing many consumers to rethink buying patterns.

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General Motors, meanwhile, reported a 40 percent drop in quarterly profits and announced plans to curb hiring. Other major employers — including Ford Motor, 7-Eleven and Shopify — are going even further, announcing hundreds, even thousands, of layoffs.

Mark Beneke, who owns a used car dealership in Fresno, Calif., is starting to see worrisome signs in the economy: Demand for cars is beginning to slow, and auto loan delinquencies and repossessions are on the rise.

But he says he isn’t panicking yet. Beneke is still hiring new employees, though he says he may cut back on his marketing budget and start buying fewer cars — perhaps 12 a week instead of 15 — if the slump continues.

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“We’re being cautious, but we’re not necessarily scared to the point where we’re freezing,” said Beneke of Westland Auto Sales. “Things don’t seem overly concerning yet.”

U.S. economy shrinks again in second quarter, reviving recession fearsU.S. economy shrinks again in second quarter, reviving recession fearsU.S. economy shrinks again in second quarter, reviving recession fears




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