GDP: US economy contracts again, fueling recession fears

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.

The nonprofit National Bureau of Economic Research is the official arbiter of recessions, and it is unlikely to render a verdict any time soon. The group’s Business Cycle Dating Committee typically weighs a plethora of statistics over a period of months before making a determination.

“They have a much stricter definition: It’s a broad-based and persistent weakness in the economy,” Sweet said. “And this isn’t broad based. It’s really concentrated in inventories and in trade — trade was a big drag on first-quarter GDP.”

Additionally, the labor market is doing well, he said. Monthly job gains average more than 450,000 through the first six months of this year, according to the Bureau of Labor Statistics. However, while those gains are moderating, as anticipated, the past few weeks have also seen jobless claims increase.

On Thursday, the latest weekly jobless claims data from the BLS showed that first-time claims for unemployment benefits were an estimated 256,000 for the week ending July 23. That total is 5,000…

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