The US economy unexpectedly contracted an annualized 0.9% in the second quarter, mainly dragged by inventories and business investment. It was the second straight quarterly decline after the reading dropped by 1.6% in the first three months of the year. Majority of analysts were expecting a 0.5% growth.
According to US Bureau of Economic Analysis:
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Create account Try a demo Download mobile app Download mobile app- Inventories fell mostly at general merchandise stores as well as motor vehicle dealers
- Residential investment plunged 14%, structures 11.7% and equipment 2.7%
- PCE rose 1%, with spending on goods falling 4.4% and government consumption tumbled 1.9%, partially reflecting the sale of crude oil from the Strategic Petroleum Reserve.
- On the flip side, net trade made a positive contribution for the first time in two years, as exports surged 18%, led by industrial supplies, materials and travel, while imports increased 3.1%
The US economy contracted for the second straight quarter. Source: Bloomberg via ZeroHedge
Traditionally, two negative GDP readings mean that the economy has entered a phase of technical recession. Since 1948, the economy has never seen consecutive quarterly growth declines without being in a recession. However in the last few days White House is trying to redefine this term. According to the National Bureau of Economic Research inflation is now based on several different factors such as the labor market and underlying demand. Also, Fed chair Powell recently said he did not believe the US was in a recession and pointed to strength in the labour market. However, recent weak data put this thesis into question. Also one needs to remember that last year Powell reassured that inflation was transitory and this prediction also turned out to be wrong. In any case, it will be difficult for the Fed to continue to aggressively raise interest rates without further harming economic growth. It seems that to some extent recession scenario is already included in the Fed calculations, however its scale may potentially limit the pace of tightening especially that Powell yesterday said, that FED once again is "full data dependent".
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