Current Affairs   »   International Current Affairs 2022   »   US Economy Shrinks 0.6% in April-June

US Economy Shrinks 0.6% in April-June

Battered by surging consumer prices and rising interest rates, the US economy shrank at a 0.6% annual rate from April through June, the government announced, unchanged from its previous second-quarter estimate. It marked the second consecutive quarter of economic contraction, one informal rule of thumb for a recession.

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Towards A Recession:

Most economists, citing a strong and resilient American job market, believe the world’s biggest economy is not yet in a downturn. But they worry that it might be headed for one as the Federal Reserve ratchets up interest rates to combat inflation. Consumer spending grew at a 2% annual rate, but that gain was offset by a drop in business inventories and housing investment.

The US economy has been sending out mixed signals this year. Gross domestic product, or GDP, went backward in the first half of 2022. But the job market has stayed strong. Employers are adding an average 438,000 jobs a month this year, on pace to be the second-best year for hiring (behind 2021) in government records going back to 1940. Unemployment is at 3.7%, low by historic standards. There are currently about two jobs for every unemployed American.

What Is a Recession:

A recession is a significant, widespread, and prolonged downturn in economic activity. A popular rule of thumb is that two consecutive quarters of decline in gross domestic product (GDP) constitute a recession. Recessions typically produce declines in economic output, consumer demand, and employment.

US Govt Approach:

The Fed has raised interest rates five times this year most recently Sept. 21 to rein in consumer prices, which were up 8.3% in August from a year earlier despite plummeting gasoline prices. Higher borrowing costs raise the risk of a recession and higher unemployment. We have got to get inflation behind us,” Fed Chair Jerome Powell said last week. I wish there was a painless way to do that. Earlier report was the Commerce Department’s third and final take on second-quarter growth. The first look at the economy’s July-September performance comes out Oct 27. Economists, on average, expect that GDP returned to growth in the third quarter, expanding at a modest 1.5% annual pace, according to a survey by the data firm FactSet.

 

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