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The US economy contracted 0.9% in the second quarter. It is the second consecutive fall, which may indicate a recession

The US economy contracted between April and June for the second consecutive quarter, at a year-on-year rate of 0.9%, raising fears that the country has entered a recession.

The decline the Commerce Department reported Thursday in gross domestic product — the economy’s broadest gauge — followed a 1.6% annual decline between January and March. Consecutive quarters of falling GDP are an informal, though not definitive, indicator of a recession.

The report comes at a critical time: consumers and businesses have been struggling under the weight of inflation and rising borrowing costs. On Wednesday, the Federal Reserve (Fed) raised its benchmark interest rate by three-quarters of a point for the second time in a row in its effort to beat the worst spike in inflation in four decades.

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The Fed hopes to get one soft landing notoriously difficult: an economic slowdown that manages to curb rising prices without triggering a recession.

Federal Reserve Chairman Jerome Powell and many experts have said that while the economy is showing some weakness, they doubt it is in a recession. Many of them point out, in particular, that the labor market remains robust, with 11 million open jobs and an unusually low unemployment rate of 3.6%, to suggest that a recession, if it comes at all, is still some way off.

The first of three government estimates of GDP for the April-June quarter on Thursday marks a drastic weakening from the 5.7% growth the economy achieved last year. It was the fastest expansion in a calendar year since 1984, reflecting the vigor with which the economy recovered from the brief but brutal pandemic downturn of 2020.

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But since then, the combination of higher prices and rising borrowing costs have taken their toll. The Labor Department’s consumer price index soared 9.1% in June from a year earlier, a pace not seen since 1981. And despite widespread wage increases, prices are rising faster than wages. In June, the median hourly wage, once adjusted for inflation, fell 3.6% from a year earlier, marking the 15th consecutive year-over-year drop.

Rising inflation and fears of a recession have eroded consumer confidence and raised public anxiety about the economy, which is sending frustrating and mixed signals.

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And with the November midterm elections approaching, American discontent has lowered President Joe Biden’s public approval ratings and increased the likelihood that Democrats will lose control of the House of Representatives and the Senate. Senate.

Consumer spending continues to grow. But Americans are losing confidence: Their assessment of economic conditions within six tables has hit its lowest point since 2013, according to the Conference Board research group.

Recession risks have been growing as Fed policy makers have waged a campaign of rate hikes likely to last into 2023. Fed hikes have already caused card rates to rise. and auto loans, and have doubled the average rate on 30-year fixed mortgages in the past year, to 5.5. Home sales, which are particularly sensitive to changes in interest rates, have plummeted.

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Although the economy registers a second consecutive quarter of negative GDP, many economists consider that it is not a recession. The most widely accepted definition of a recession is that determined by the National Bureau of Economic Research, a group of economists whose Committee on Business Cycle Data defines a recession as “a significant decline in economic activity that spreads throughout the economy and lasts longer than a few months.”

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The committee weighs a number of factors before publicly declaring the death of an economic expansion and the birth of a recession, and often does so long after the fact.

This week Walmart, the nation’s largest retailer, lowered its profit outlook, saying rising gas and food prices were forcing shoppers to spend less on many discretionary items, such as new clothes.

The manufacturing sector is also slowing down. U.S. factories have enjoyed 25 straight months of expansion, according to the Institute for Supply Management’s manufacturing index, though supply chain bottlenecks have made it difficult for factories to fill orders.

But now, the factory boom is showing signs of strain. The Manufacturing Index (ISM) fell last month to its lowest level in two years. New orders decreased. Hiring at factories fell for the second month in a row.

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