US economy shrinks for a second quarter, raising recession fears

The US economy shrank from April through June for a second straight quarter, contracting at a 0.9 per cent annual pace and raising fears that the nation may be approaching a recession.

The decline that the US Commerce Department reported on Thursday (Friday AEST) in the gross domestic product — the broadest gauge of the economy — followed a 1.6 per cent annual drop from January through March. Consecutive quarters of falling GDP constitute one informal, though not definitive, indicator of a recession.

The GDP report for last quarter pointed to weakness across the US economy – the world’s biggest . Consumer spending slowed as Americans bought fewer goods. Business investment fell. Inventories tumbled as businesses slowed their restocking of shelves, shaving 2 percentage points from GDP.

Higher borrowing rates, a consequence of the Federal Reserve’s series of rate hikes, clobbered home construction, which shrank at a 14 per cent annual rate. Government spending dropped, too.

The report comes at a critical time. Consumers and businesses have been struggling under the weight of punishing inflation and higher loan costs. On Wednesday, the Fed raised its benchmark rate by a sizable three-quarters of a point for a second straight time in its push to conquer the worst inflation outbreak in four decades.

The Fed is hoping to achieve a notoriously difficult “soft landing”: An economic slowdown that manages to rein in rocketing prices without triggering a recession.