The numbers: The U.S. shrank in the first six months of the year, revised government figures confirm, and painted a picture of economy buffeted by strong headwinds and tailwinds.
Gross domestic product, the official scorecard of the economy, fell at a 0.6% annual clip in the second quarter, the Bureau of Economic Analysis said Thursday. That’s unchanged from the prior estimate.
The previously reported 1.6% decline in first-quarter GDP, meanwhile, was also unchanged.
The newly revised figures were unveiled as part of the government’s annual process of adjusting the prior five years worth of data based on new information.
Some economists had speculated the revised numbers could show growth instead of contraction. Instead there was very little change.
Political partisans have sparred over whether the U.S. had slipped into recession ahead of the pivotal fall elections in which control of Congress is at stake. An old but informal rule-of-thumb defines a recession as two consecutive quarters of negative GDP.
Yet while U.S. growth has clearly slowed, the strongest labor market in decades signals the economy is still in expansion mode. Businesses are hiring, layoffs are at a record low and the unemployment rate is near the lowest level since the 1960s.
In any case, the debate might already be moot. The U.S. economy is facing stronger headwinds this fall and another recession might be looming.
Big picture: The updated GDP figures offer a slightly clearer view of what’s happened to the economy since the pandemic, but it tells us nothing about the future. And the future looks dimmer.
While the third quarter is likely to show the economy expanding again, the latest forecasts show, a storm is brewing as 2023 approaches.
The Federal Reserve is quickly raising the cost of borrowing to rein in high inflation, but its aggressive strategy is also expected to slow the economy and boost unemployment. Many economists even predict a second recession in four years.
Key details: Consumer spending accounts for as much as 70% of U.S. economic activity and outlays were somewhat stronger than previously reported in the first half of the year.
Spending rose at an inflation-adjusted 2% annual pace in the second quarter and 1.3% in the first quarter.
What caused GDP to shrink was a record trade deficit, the end of most pandemic stimulus and a sharp decline in business spending, especially on new inventories.
The biggest surprise in the report was a reduction in so-called gross domestic income — basically wages and profits.
The growth in income — the flip side of spending — was revised down in the second quarter to 0.1% from a previous 1.4%. Income growth was also lowered to 0.8% in the first quarter from 1.8%.
Many economists had suspected GDP was actually stronger in the first half of the year than the government previously reported because of the gains in income. Higher incomes usually mean higher spending.
Incomes did not rise as much as previously estimated, however, probably because of rising inflation. Higher price pressures wiped out most income gains.
Looking ahead: “Consumers are holding up well, even with high inflation, and the labor market remains very strong,” said chief economist Gus Faucher of PNC Financial Services. “But there’s a real possibility that the Fed could overdoes it, pushing the US economy into recession in the first half of 2023.”