The US economy shrank in the second quarter as sky-high inflation amplified recession fears

The US economy contracted for a second quarter in a row, raising fears of a new recession.

The Commerce Department said Thursday that the economy shrank at an annual rate of 0.9% in the three-month period that ended in June. The economists were expecting the growth to be around a half a percent. The economy continued to shrink in the second quarter after contracting in the first.

It is one of the most anticipated economic reports. The recovery from the coronaviruses has been slower this year due to supply chain tangles, weaker spending, and the fastest inflation in 41 years. The contraction in the first quarter was caused by a trade deficit and slower inventory growth. A technical recession is defined as consecutive quarters of negative GDP growth.

According to the report, the decline was caused by a drop in investment, waning government spending, and slower inventory build-up. Both imports and exports added to GDP. Domestic demand is reflected in the trade deficit. The recovery in the US has been stronger than in many other advanced economies because of the historicStimulus, which has seen the US import more and export less.

Spending in the second quarter was less than in the first. Personal consumption grew just 1% through the period, down from the 1.8% rate seen during the first quarter and missing the median estimate. The US could be in for even weaker growth in the months ahead since consumer demand is roughly two-thirds of the economy.

The reading doesn't make much of a difference in the way official recession dating is done. The National Bureau of Economic Research is the only organization that can determine when a downturn starts and ends. A significant decline in economic activity that is spread across the economy and that lasts more than a few months is a sign that the economy has entered a recession. The committee's decision-making is far from the only factor taken into account.

The report paints a gloomy picture of the economy's performance, but other data shows the recovery was intact through the end of June. The country added over 350,000 jobs last month. The unemployment rate was at a historic low. The US is on track to return to pre-pandemic employment figures by the end of the summer.

The US isn't in a downturn just yet, according to Fed Chair Powell. On Wednesday, the central bank raised interest rates in order to cool inflation. Powell said that upcoming meetings could see smaller increases as the Fed looks to fight inflation without slowing the economy.

Powell said that the Federal Open Market Committee thinks it's necessary for growth to slow down.

He thinks the economy is not in a recession. There are a lot of areas of the economy that are doing well.