The U.S. economy contracted in the second quarter, but at a rate that was less than originally estimated, the Bureau of Economic Analysis reported on Thursday.
The improved second estimate put the decline in the nation’s gross domestic product in the second quarter at 0.6%, an improvement over the 0.9% initially reported. The first-quarter decline of 1.6% remained unchanged. Much of the revision came from better data on consumer spending.
The upward revision confirms that the economy suffered two consecutive quarters of contraction this year, what some people consider a recession though that is not a formal definition. However, the improvement reported Thursday means that talk of recession may be muted for now.
Political Cartoons on the Economy
That official assessment of whether the economy has suffered a recession is made by an independent group, the National Bureau of Economic Research, and is considered “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Such designations often occur long after the downturn has actually begun.
While there has been some deterioration in the economy, job growth remains strong and consumers continue to spend. The housing sector is now slowing down, but the most recent reading on sales activity for July came in better than forecast while new home sales have fallen sharply.
A lot of economic data this year reflects comparisons with a year ago when the economy began recovering from the coronavirus pandemic, and that has complicated the job of economists seeking to understand where the economy currently stands.
Meanwhile, the Federal Reserve is raising interest rates to curb inflation that has been running at an annual rate of more than 8, and even there some recent signs suggest that the trend of rising prices could be slowing down or reversing. Inflation in July was unchanged from a month earlier, for example.
The Fed is caught between its desire to stamp out inflation and avoiding a recession, although Chairman Jerome Powell has said the central bank is prepared to see the economy slow if that is what it takes to bring inflation back closer to the Fed’s 2% annual target.
On Friday, Powell will speak about the central bank’s view on inflation and interest rate policy going forward as the Fed hosts its annual summer symposium at Jackson Hole, Wyoming.
“Though inflation overall may be showing signs of a peak, we remain cautious about calling this latest move a trend with any legs, because the number was largely driven by the decline in gas prices,” Mace McCain, chief investment officer at Frost Investment Advisors, wrote on Wednesday.
Luke Bartholomew, senior economist at abrdn, said that Powell will use his speech “to stress that policy still has a long way to go before the Fed will feel comfortable it has decisively turned the corner on restoring price stability.”
Separately on Thursday, the Labor Department reported that first-time claims for unemployment benefits fell slightly to 243,000 from the prior week’s revised 245,000. The four-week moving average, meanwhile, was 247,000, a decrease from the prior period’s revised number.