U.S. economy contracts again in second quarter; jobless claims fall

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economic system contracted once more within the second quarter amid aggressive financial coverage tightening from the Federal Reserve to fight excessive inflation, which might fan monetary market fears that the economic system was already in recession.

Gross home product fell at a 0.9% annualized charge final quarter, the Commerce Division mentioned in its advance estimate of GDP on Thursday. Economists polled by Reuters had forecast GDP rebounding at a 0.5% charge.

Estimates ranged from as little as a 2.1% charge of contraction to as excessive as a 2.0% progress tempo. The economic system contracted at a 1.6% tempo within the first quarter.

The second straight quarterly decline in GDP meets the usual definition of a recession.

However the Nationwide Bureau of Financial Analysis, the official arbiter of recessions in the USA defines a recession as “a major decline in financial exercise unfold throughout the economic system, lasting various months, usually seen in manufacturing, employment, actual earnings, and different indicators.”

Job progress averaged 456,700 per thirty days within the first half of the 12 months, which is producing robust wage good points. Nonetheless, the dangers of a downturn have elevated. Homebuilding and home gross sales have weakened whereas enterprise and client sentiment have softened in current months.

The White Home is vigorously pushing again towards the recession chatter because it seeks to calm voters forward of the Nov. 8 midterm elections that can determine whether or not President Joe Biden’s Democratic Occasion retains management of the U.S. Congress.

Treasury Secretary Janet Yellen is scheduled to carry a information convention on Thursday to “focus on the state of the U.S. economic system.” Whereas labor market stays tight, there are indicators it’s shedding steam.

A separate report from the Labor Division on Thursday confirmed preliminary claims for state unemployment advantages decreased 5,000 to a seasonally adjusted 256,000 for the week ended July 23. Economists polled by Reuters had forecast 253,000 functions for the newest week.

Jobless claims stay beneath the 270,000-350,000 vary that economists say would sign a rise within the unemployment charge. Slowing financial progress might, nonetheless, encourage the Fed to step again from hefty rate of interest will increase, although a lot would rely on the trail of inflation, which is method above the U.S. central financial institution’s 2% goal.

The Consumed Wednesday raised its coverage charge by one other three-quarters of a proportion level, bringing the full rate of interest hikes since March to 225 foundation factors. Fed Chair Jerome Powell acknowledged the softening financial exercise because of tighter financial coverage.

(Reporting by Lucia Mutikani; Enhancing by Chizu Nomiyama)