US Economy Contracts As Recession Mounts

The US economy shrank again in the second quarter, the Bureau of Economic Analysis said Thursday. 

Gross domestic product, a wide-ranging measure of economic activity, fell by 0.9% on an annualized basis from April through June. That decline marks a key symbolic threshold for the most commonly used — albeit unofficial — definition of a recession as two consecutive quarters of negative economic growth.

The hotly anticipated data release has taken on outsized significance as investors, policymakers and ordinary Americans seek some measure of clarity in the current muddled economic environment. 

The negative dip shown in Thursday’s first read on second-quarter GDP activity — data that will be revised two more times — was driven mostly by a decline in inventory levels. Businesses in recent quarters have tried to replenish stockpiles drawn down during the pandemic — and in trying to adjust for supply chain upheaval, they’ve found themselves overstocked at a time when consumers have pulled back on some purchases. Investments made in inventory during the second quarter were therefore lower than they were in the first quarter. 

“The general takeaway is the economy is slowing, and that’s what the [Federal Reserve] wants,” said Ryan Sweet, who leads real-time economics at Moody’s Analytics. “We’re not in a recession.”

Although Thursday’s initial estimate marked a sharp drop from the 6.7% expansion the economy underwent in the second quarter of 2021, the White House has been adamant that the world’s largest economy, despite being buffeted by decades-high inflation and a cascade of supply shocks, remains fundamentally sound. 

The administration even took the unusual step of publishing an explainer of sorts, maintaining that two consecutive quarters of economic contraction does not, in and of itself, constitute a recession. The White House posted a blog entry last week saying that in addition to GDP, data pertaining to the labor market, corporate and personal spending, production and incomes all go into the official determination of a recession.