US enters technical recession amid contraction in growth in second straight quarter

The US economy entered a technical recession in the second quarter, according to figures released on Thursday by the Commerce Department, which showed a drop in the first three months of the year.

Gross domestic product declined 0.9% year on year in the second quarter, or 0.2% from the previous quarter — the figure used by other major countries. This comes on the heels of first-quarter GDP figures indicating that the US economy fell by 1.6%.

Despite the decline, personal consumption, which provides insight into the health of the US consumer, increased by 1%, a deceleration from 1.8% in the first quarter but still indicating strength.

Nonetheless, two quarters of negative growth in a row might frighten investors. Stock market futures fell, while the two-year Treasury yield, which swings in tandem with interest rate forecasts, fell.

The data comes a day after the Federal Reserve boosted interest rates by 0.75 percentage point as part of an aggressive anti-inflation effort. The central bank’s recent rate hikes have begun to slow the economy, and market players are watching intently to see if this fast tightening will tip the US into recession.

Economists believe the statistics will not change the Fed’s mind for the time being. In a press conference following Wednesday’s policy meeting, head Jay Powell stated that the US was not in a recession and pointed to economic growth, notably in the labour market.