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Wednesday, December 07, 2022

United States: GDP contracts 0.6% annually in the second quarter

United States: GDP contracts 0.6% annually in the second quarter

WASHINGTON ( Associated Press) – Hit by rising consumer prices and rising interest rates, the US economy shrank at a 0.6% annual rate from April to June, unchanged from its previous estimate for the second quarter, the government announced Thursday.

It was the second consecutive quarter of economic contraction, one of the unofficial signs of a slowdown. Most economists say the world’s largest economy isn’t quite there yet, given the strength of the US labor market, but fear it will go in that direction as the Federal Reserve raises interest rates to fight inflation.

Consumer spending grew at a 2% annual rate, but that increase was offset by falling business inventories and housing investment.

The US economy has given mixed signs this year. GDP fell in the first half of 2022. But the labor market remains strong. Employers have created an average of 438,000 jobs this year, which is only down from 2021. Unemployment remains at 3.7%, a historically low figure. There are two jobs for every unemployed person.

But the Fed has raised interest rates five times this year — most recently on September 21 — to rein in consumer prices, which rose 8.3% in August from a year earlier, despite falling prices. The rising cost of borrowing increases the risk of recession and rising unemployment. “We have to put inflation behind us,” Fed Chairman Jerome Powell said last week. “I wish there was a painless way to do this. There isn’t”.

Thursday’s report from the Commerce Department was the third and final on growth in the second quarter. The first on the performance of the economy in July-September comes on October 27. Economists expect GDP to grow again in the third quarter at a modest 1.5% annual rate, according to a survey by data firm FactSet.

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