With inflation soaring and consumer confidence in the gutter, the U.S. economy slumped further in the last quarter, according to the Bureau of Economic Analysis’s preliminary estimates released Thursday, stoking fears of a recession.
Gross domestic product fell at a 0.9% annualized rate, following a 1.6% decline in the first quarter, the estimates showed.
A common rule of thumb is that two consecutive quarterly declines in GDP indicates a recession. However, economists have said, this may not be true in this case.
“The concept of recession really means there’s been a general decline in economic activity, broadly based over a number of indicators,” Northeastern University economics professor Alan Clayton-Matthews said. “But one of the most important indicators is jobs. And jobs actually grew at a pretty brisk pace during this quarter. On that score, it’s unlikely we’re in a recession now.”
The U.S. currently has 11 million job openings and a 3.6% unemployment rate. With GDP contracting and continued job growth, the economy is in a highly unusual position.
The National Bureau of Economic Research, which officially determines the duration of business cycle the U.S., has not yet indicated the economy is in a recession.
The group is likely to conclude a recession has begun, Clayton-Matthews said, once employment begins to fall or if employment growth slows as spending and output decline further.
The Fed raised interest rates by a highly unusual three-quarters of a percent for the second time this year Wednesday in an attempt to control skyrocketing inflation.
The higher interest rates contributed to a steep slowdown in the housing market in the April-June quarter, shown in report Thursday. Declining business investment, inventories and government spending also contributed to the economy’s shrinkage.
The most major component of the economy, personal consumption, grew by 1% – “a weak rate of growth” and a decline from the previous quarter, Clayton-Matthews said.
“Consumer spending, in terms of dollars spent, rose about an 8% annualized rate, which is pretty strong,” Clayton-Matthews said. “Except that inflation ate almost all of it. In other words, we’re spending a lot of money but aren’t getting very much in return for it.”
Inflation, Clayton-Matthews said, is the biggest way the downturn is hitting Americans so far, weighing down consumer confidence.
The Massachusetts economy also shrank by 0.2 percent annualized rate in the quarter, according to a MassBenchmarks release Thursday. The state outperformed the U.S. in employment growth and wage and salary growth.