US revision shows economy shrank 0.6 pct

The US economy shrank at a 0.6 per cent annual rate from April through June, the government says in an upgrade from its initial estimate.

It marked a second straight quarter of economic contraction, which meets one informal sign of a recession.

Most economists, though, have said they doubt the economy is in or on the verge of a recession, given that the United States job market remains robust, with strong hiring, low unemployment and widespread openings.

Still, inflation is near a four-decade high and is punishing consumers and businesses.

And the Federal Reserve’s aggressive efforts to tame inflation through steep interest rate hikes are raising the risk of an eventual recession.

In its revised estimate on Thursday, the Commerce Department calculated that the country’s gross domestic product – the broadest measure of economic output – contracted last quarter, although less than the 1.6 per cent annual decline in the January-March period.

In its previous estimate for the April-June quarter, the government had estimated that the economy had shrunk at a 0.9 per cent rate.

Consumer spending, which accounts for nearly 70 per cent of US economic activity, grew at a 1.5 per cent annual pace last quarter, faster than Commerce initially estimated but down from 1.8 per cent from January through March.

By contrast, US government spending and business investment declined.

And inventories tumbled as businesses slowed their restocking of shelves, shaving 1.8 percentage points from GDP.

Rising interest rates hammered the housing market.

Home construction plunged 16.2 per cent.

In its drive to curb inflation, the Fed has raised its benchmark interest rate four times this year by increasingly large increments.

By raising borrowing rates, the central bank is making it costlier to take out a mortgage or a car or business loan.

The idea is that consumers and businesses will borrow and spend less, thereby helping cool the economy and slow inflation.

In the meantime, signs of economic weakness are growing.

The rise in borrowing costs has weakened the housing market, in particular.

Sales of both new and existing homes are down sharply, and the pace of home construction in July sank to its lowest point since early last year.

Similarly, retail sales were flat last month, with inflation and higher loan rates forcing many households to spend more cautiously.

But the job market remains resilient.

Employers are adding a robust average of 470,000 jobs a month, and unemployment is down to 3.5 per cent, tying a pre-pandemic 50-year low.

“The economy remains a puzzle with economic growth still negative but job lay-offs remain surprisingly low,” Christopher Rupkey, chief economist at the research firm FWDBONDS LLC, said.

“The recession everyone knows is coming isn’t here yet.”

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