By Lucia Mutikani
WASHINGTON (Reuters) – The U.S. economy contracted at a more moderate pace than initially thought in the second quarter as consumer spending eased some of the impact of a slower pace of inventory build-up, allaying fears of that a recession is underway.
This was underscored by Thursday’s Commerce Department report, which also showed the economy growing steadily in the last quarter when measured on the income side. This fits with recent solid readings on the labor market, retail sales and industrial production.
US gross domestic product shrank at an annualized rate of 0.6% in the last quarter, the government said in its second GDP estimate. This was an upward revision from the previously estimated pace of decline of 0.9%. The economy contracted 1.6% in the first quarter. Economists polled by Reuters had expected GDP to be revised up slightly to show a 0.8% drop in output.
While two consecutive quarterly declines in GDP meet the standard definition of a technical recession, broader measures of economic activity suggest a slow pace of expansion rather than contraction.
An alternative measure of growth, Gross Domestic Income, rose at a rate of 1.4% in the second quarter. Gross Domestic Income, which measures the performance of the economy on the income side, grew 1.8% in the first quarter.
The Gross National Product, considered the best measure of economic activity, grew 0.4% in the period between April and June, compared to 0.1% in the first quarter.
The economy remains on firmer ground. Core retail sales came in much stronger than initially reported in May, and this strength persisted through June and July. Industrial production hit a record high in July, while corporate spending on equipment was solid. The labor market continues to produce jobs at a rapid pace.
The National Bureau of Economic Research, the official arbiter of recessions in the United States, defines a recession as “a significant decline in economic activity spread throughout the economy, lasting more than a few months, typically visible in output, employment, real income, and other indicators.”
But the risk of a recession has increased as the Federal Reserve aggressively raises interest rates to cool demand and contain inflation, souring business and consumer sentiment. The US central bank has raised its benchmark interest rate by 225 basis points since March.
A speech by Fed Chair Jerome Powell at the annual conference of global central banks in Jackson Hole, Wyoming, on Friday may shed light on whether the US central bank will be able to promote an economic slowdown without triggering a recession.
(Reporting by Lucia Mutikani)
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