US Economy Slips Into Recession as Inflation Weighs on Growth

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The U.S. economy contracted in the second quarter, marking two consecutive quarters of negative growth, which is a common definition of a recession.

The gross domestic product (GDP) shrank 0.9 percent at an annualized pace, following a drop of 1.6 percent in the first quarter, the Commerce Department said Thursday. The market had penciled in a gain of 0.5 percent during the April-to-June span.

The decline in GDP reflected declines in inventories (-2.01 percent), residential investment (-0.71 percent), and government spending (-0.33 percent). But this was offset by gains in exports (+1.43 percent) and consumer spending (+0.7 percent).

“The U.S. economy is slowing at a significant rate,” economist Mohamed El-Erian tweeted shortly after the numbers were published. “Add to that the 8.7% price change in today’s data and the bottom line is clear: Deepening stagflation and flashing red recession risk.”

The much-anticipated GDP report also showed that real personal income fell 0.5 percent. And personal saving as a percentage of disposable personal income dropped to 5.2 percent in the second quarter from 5.6 percent in the first quarter.

Moreover, the drop in inventories was led by a decline in retail trade, primarily in general merchandise stores and motor vehicle dealers. The decrease in government spending was attributed to a dip in non-defense expenditures, mainly due to the sale of crude oil from the Strategic Petroleum Reserve (SPR).

The details of the report show that residential investment contracted by 14 percent at an annualized pace. This was driven by a decrease in “other” structures, specifically brokers’ commissions. The decline in real estate investment reflected a decline in brokers’ commissions.

Morgan Stanley economists issued a report declaring a “technical recession” for the economy.

“Real GDP contracted in the second quarter, marking a technical recession,” the economists wrote. “We have highlighted the risks that 2Q data would mark a technical recession, not an economic one, as private final domestic demand remained positive in the first half of the year.”

By Andrew Moran

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