U.S. on the brink of recession as GDP contracts again in 2nd quarter
Federal Reserve of the U.S. /Xinhua

Federal Reserve of the U.S. /Xinhua

The U.S. economy unexpectedly contracted in the second quarter, with consumer spending growing at its slowest pace in two years and business spending declining, raising the risk that the economy was on the cusp of a recession.

While the second straight quarterly decline in gross domestic product reported by the Commerce Department on Thursday largely reflected a more moderate pace of inventory accumulation by businesses due to ongoing shortages of motor vehicles, the economic profile was weak, with exports the only bright spot.

This could deter the Federal Reserve from continuing to aggressively increase interest rates as it battles high inflation. The U.S. central bank on Wednesday raised its policy rate by another three-quarters of a percentage point, bringing the total rate hikes since March to 225 basis points.

"The economy is highly vulnerable to slipping into a recession," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. "That might discourage the Fed from ramming through another large rate hike in September."

Gross domestic product fell at a 0.9 percent annualized rate last quarter, the government said in its advance estimate of GDP.

Economists polled by Reuters had forecast GDP rebounding at a 0.5 percent rate. Estimates ranged from as low as a 2.1 percent rate of contraction to as high as a 2.0 percent growth pace. The economy contracted at a 1.6 percent pace in the first quarter.

It shrank 1.3 percent in the first half, satisfying the definition of a 'technical recession.' But economists say the economy is not in recession using broader measures of activity.

(With input from Reuters)

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