US economy shrinks again sparking recession fears

• US economy shrank at an annual rate of 0.9% in the three months leading up to July.
• Prices for food, gas and other necessities are going up faster than 1981.
• The US central bank is raising interest rates to try to slow down the economy.

For the second quarter in a row, the US economy has shrunk. In many other countries, this means that the economy is in a recession.

In the US, that doesn’t work because that call needs more information.

But the fact that the economy shrunk at an annual rate of 0.9% in the three months before July has made a lot of people worry about the economy.

Prices for gas, food, and other things that people need to live are going up faster than they have since 1981.

People are worried that a recession is coming, if it hasn’t already started, because the US central bank is quickly raising interest rates on loans to slow down the economy and ease price pressures.

US President Joe Biden has tried to convince people that the economy is still strong by pointing out that the unemployment rate has stayed low at 3.6% and that hiring has been strong.

Mr. Biden said on Thursday, “If you look at our job market, consumer spending, and business investment, you can see signs of economic progress.” He also talked about the important steps forward that the US took after the pandemic last year. “We know for sure that growth will be slower than it was last year…. That fits with a move toward steady, stable growth and lower inflation.”

Before the Commerce Department’s numbers came out this week, he told reporters that the economy “was not going to be in a recession.” His Republican opponents said that meant the White House was trying to change what a word means.

They said that the White House’s attempt to “rebrand” the recession won’t make things better for Americans.

The US economy shrank at a rate of 1.6% per year in the first three months of the year. At the time, economists thought that strange trade data was to blame for the drop in GDP.

But Thursday’s report showed that growth had slowed even more. The housing market, business investment, and government spending all went down, which slowed growth. Consumer spending grew at a slower annual rate of 1% because people spent more on healthcare, housing, and eating out, but less on goods and groceries.

Jeffrey Frankel, a professor at Harvard, used to be on the committee of the National Bureau of Economic Research. This is the group of economists in charge of making the official announcement of a recession.

He said that he didn’t think a recession started at the start of the year because job growth was going so well. After that, though, he was less sure of himself.

“Things have already slowed down, so I’m not saying everything is great,” he said. “The chances of a recession in the next few years are much higher than in a random year.”

June US inflation was 9.1%. This was the quickest pace of price rise in more than 40 years.

The US central bank raised its main interest rate by 0.75 percentage points Wednesday. The Fed hiked rates by this amount twice since March.

The Federal Reserve thinks that by raising interest rates, individuals would spend less on houses and vehicles, reducing price pressure. Less demand equals less economic activity.

Consumer confidence is falling, the housing market is stagnating, and economic activity has declined since 2020.

General Motors and Meta, which owns Facebook and Instagram, have announced they would recruit fewer since the start of the year. Other firms, notably in real estate, may lose employees.

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