US economy shrinks for 2nd straight quarter, raises fears of a recession

The US economy saw a fall between April and June for a second straight quarter. The gross domestic product contracted at a 0.9% rate raising fears of the country heading towards a recession.

The GDP decline reported by the Commerce Department on Thursday (July 28) followed a 1.6% drop in the first three months of the year from January to March.

Also read: Indian IT firms contributed $198 b to US economy, hired 2 lakh Americans in 2021

Two consecutive quarters of negative growth can be an indicator of approaching recession.

While businesses and consumers are battling inflation and higher borrowing costs, on Wednesday the central bank raised its interest rate by 75 basis points to battle the rising inflation.

As per reports, the Federal Reserve is hoping to achieve a difficult “soft landing” where the slowing economy doesn’t trigger a recession.

The hike in rates has occurred fourth time in the year and the bank stressed that it won’t hesitate to go for another in case of need.

Fed Chair Jerome Powell and other economists doubt that it is a recession.

Some of them point to a still-robust labour market with 11 million job openings and low unemployment rate of 3.6% as reasons that the country is not approaching recession.

Also read: India headed for robust economic growth, says FM

Among the main factors behind the falling economy are supply chain disruptions caused due to lockdowns and the Russia-Ukraine war which has sent prices of food and fuel to all-time highs.

As per reports, home building and house sales have also weakened. Also, the personal consumption expenditures price index rose 7.1% in the last three months.

As per Money Control, due to impending recession, the shares were also fast falling early Thursday. The S&P 500 was down 0.4%, the Dow Jones Industrial Average dropped 0.4% and the technology-heavy Nasdaq Composite was down 0.6%.

The US government is trying to vigorously push back the recession talk ahead of November 8 midterm elections, reports said.

The National Bureau of Economic Research defines a recession as: “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”