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    GDP Rose in 3rd Quarter, but US Recession Fears Persist

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    Gross Domestic Product
    Note: Quarterly changes in gross domestic product, adjusted for inflationSource: Bureau of Economic AnalysisBy The New York TimesEconomic growth rebounded over the summer, the latest government data shows, but slowing consumer spending and a rapidly weakening housing market mean the report will do little to ease fears of a looming recession.Gross domestic product, adjusted for inflation, rose 0.6 percent in the third quarter, a 2.6 percent annual rate of growth, the Commerce Department said Thursday. It was the first increase after two consecutive quarterly contractions.But the third-quarter figures were skewed by the international trade component, which often exhibits big swings from one period to the next. Economists tend to focus on less volatile components, which have showed the recovery steadily losing momentum as the year has progressed.“Ignore the headline number — growth rates are slowing,” said Michael Gapen, chief U.S. economist for Bank of America. “It wouldn’t take much further slowing from here to tip the economy into a recession.”Consumer spending, the bedrock of the U.S. economy, rose just 0.4 percent in the third quarter, down from a 0.5 percent increase in the quarter before, as rapid inflation ate away at households’ spending power.The slowdown in spending will be welcome news for policymakers at the Federal Reserve, who have been trying to cool off consumer demand to tamp down inflation. The central bank has raised interest rates aggressively in recent months, and is expected to announce another big increase at its meeting next week.But forecasters and investors have become increasingly concerned that the Fed will go too far in its efforts to slow the economy and will end up causing a recession. Consumer spending has continued to increase despite higher interest rates and rising prices, but it is unclear how long that can last.“‘Borrowed time’ is how I would describe the consumer right now,” said Tim Quinlan, senior economist at Wells Fargo. “Credit card borrowing is up, saving is down, our costs are rising faster than our paychecks are.”The impact of rising interest rates is clear in the housing market, where home building and sales have both slowed sharply in recent months. The third quarter was in some sense a mirror image of the first quarter, when G.D.P. shrank but consumer spending was strong. In both cases, the swings were driven by international trade. Imports — which don’t count toward domestic production figures — soared early this year as the strong economic recovery led Americans to buy more goods from overseas. Exports slumped as the rest of the world recovered more slowly from the pandemic.Both trends have begun to reverse as American consumers have shifted more of their spending toward services and away from imported goods, and as foreign demand for American-made goods has recovered. Supply-chain disruptions have added to the volatility, leading to big swings in the data from quarter to quarter.Few economists expect the strong trade figures from the third quarter to continue, especially because the strong dollar will make American goods less attractive overseas. More

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    Has the U.S. economy been shrinking? New data will shed light.

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    Government data on Thursday will help answer a seemingly simple but surprisingly thorny question: Did the U.S. economy shrink in the second quarter?The Commerce Department’s initial reading showed that gross domestic product, adjusted for inflation, fell 0.2 percent (an annual rate of 0.9 percent) in the quarter. It was the second straight contraction, fanning fears that the economy was entering a recession, or perhaps that one had already begun.On Thursday, the government will release revised figures based on more complete data. Forecasters expect the new data to show that G.D.P. shrank by a bit less than previously calculated. (The numbers will be revised again next month.)But another number in the report is arguably more important: the government’s first estimate for gross domestic income in the second quarter.Gross domestic income is gross domestic product’s less-famous twin. In theory, the two indicators measure the same thing, economic output, from opposite sides of the ledger: One person’s spending is someone else’s income.In practice, though, the two indicators can diverge because the government can’t measure the economy perfectly. And recently, they have diverged considerably. In the first quarter, gross domestic product fell, while gross domestic income rose. The divergence matters because both numbers can’t be right — and some economists believe the figure on income is likely to be closer to the mark, because the government collects more detailed data on income. If they are right, and if the income numbers continue to look stronger, it would suggest that the economy kept growing in the first half of the year. That would ease concerns about a recession. More

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    Highlights From Today’s G.D.P. Report

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    The top-line number for U.S. gross domestic product is a composite of positive and negative forces, and the details matter: Consumer spending, which powers the majority of the economy, rose 1 percent on an annualized basis, a marked slowdown from previous months as purchases of goods declined and spending on services grew only moderately.Home construction, also referred to as residential fixed investment, sagged 14 percent at an annual rate under the weight of rising interest rates, which have put mortgages beyond the reach of more would-be home buyers.Inventories, which measure the amount of stuff that’s been produced or imported but not yet sold, depressed the overall number by more than two percentage points on an annual basis. Companies still added to their inventories in the second quarter, but more slowly than in the first, which dragged down overall growth.Business construction, known as fixed investment in nonresidential structures, dove by 11.7 percent on an annual basis, as construction of factories and warehouses — also an interest rate-sensitive sector — slowed. Federal government spending shrank 3.2 percent on an annual basis, as stimulus money continues to fade out and oil was released from the Strategic Petroleum Reserve, although defense spending grew 2.5 percent as military aid flowed to Ukraine.Final sales to domestic purchasers, which some economists favor as a metric that cuts out volatile inventories and government spending, sank 0.3 percent.(All the figures are reported on a seasonally adjusted basis.) More

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    Climate Change Is Probably a Drag on Growth, but It’s Unclear How Much

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    It’s been hot out there. Like water-main-breaking, train-slowing, corn-scorching, road-buckling hot — not to mention heat’s effects on human bodies, making it harder to work in construction and harvest crops.All of that must be playing into the gross domestic product reading for the second quarter, right?The short answer is yes. The longer answer is that it’s very hard to track that impact in real time, but economists are working on doing it better.For more than a decade, researchers have constructed forecasts of climate change’s likely economic impact. A 2018 paper found, for example, that the annual growth rate of state-level economic output declined 0.15 to 0.25 percentage points for every degree the average temperature crept higher in the summer — which could take up to a third off economic growth over the next century. And that’s just in the United States.Those estimates, however, benefit from long-term data sets that allow analysts to compare the effects of temperature and extreme weather events over time. They also tend to project further into the future, which generally yields more eye-popping outcomes, and is more relevant for evaluating the effects of policy interventions meant to curb emissions.“As a profession, we’ve been really focused on future economic impacts from climate change, because we’ve been focused on how you should be taxing carbon emissions,” said Derek Lemoine, an associate professor of economics at the University of Arizona. “We’ve been less focused on what climate change is doing already, partly because we didn’t realize it would happen this quickly.”But Dr. Lemoine is working on doing exactly that, with the goal of estimating how climate change is affecting the economy at nearly the same time that statistics like G.D.P. are being compiled.Other researchers are working on developing measures of economic growth that integrate not just production of goods and services — which themselves can accelerate climate change — but environmental and social elements as well. More

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    Is the U.S. Entering a Recession? Here’s Why It’s Hard to Say.

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    The U.S. may register a second straight quarter of economic contraction, one benchmark of a recession. But that won’t be the last word.The United States is not in a recession.Probably.Economic output, as measured by gross domestic product, fell in the first quarter of the year. Government data due this week may show that it fell in the second quarter as well. Such a two-quarter decline would meet a common, though unofficial, definition of a recession.Most economists still don’t think the United States meets the formal definition, which is based on a broader set of indicators, including measures of income, spending and job growth. But they aren’t quite as sure as they were a few weeks ago. The housing market has slowed sharply, income and spending are struggling to keep pace with inflation, and a closely watched measure of layoffs has begun to creep up.“A month ago, I was writing that it was very unlikely that we are in a recession,” said Jeffrey Frankel, a Harvard economist. “If I had to write that now, I would take out the ‘very.’”

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    Change in select recession indicators since February 2020
    Notes: Production and job data are through June. Income and spending are through May and are adjusted for inflation. Income data excludes government transfer payments. All figures are seasonally adjusted.Sources: Commerce Department, Labor Department and Federal Reserve, via FREDBy The New York TimesMr. Frankel served until 2019 on the Business Cycle Dating Committee of the National Bureau of Economic Research, the semiofficial arbiter of when recessions begin and end in the United States. The committee tries to be definitive, which means it typically waits as much as a year to declare that a recession has begun, long after most independent economists have reached that conclusion. In other words, even if we are already in a recession, we might not know it — or, at least, might not have official confirmation of it — until next year.In the meantime, economists agree that the risks of a recession are rising. The Federal Reserve is raising rates aggressively to try to tame inflation, which has already contributed to large declines in the stock market and a steep drop in home construction and sales. Higher borrowing costs are all but certain to lead to slower spending by consumers, reduced investment by businesses and, eventually, slower hiring and more layoffs — all hallmarks of an economic downturn.“Are we in a recession? We don’t think so yet. Are we going to be in one? It’s a high risk,” said Joel Prakken, chief U.S. economist for S&P Global Market Intelligence.But the U.S. economy still has important sources of strength. Unemployment is low, job growth is robust, and households, in the aggregate, have lots of money in savings and relatively little debt. “The narrative that the economy has slowed quite a bit and is showing signs of deterioration from higher inflation and higher interest rates, that narrative is solid,” said Ellen Zentner, chief U.S. economist for Morgan Stanley. “But when you look at factors like jobs, where we’re still creating three to four hundred thousand jobs a month, with an unemployment rate that has not begun to show signs of sustained increases, and the cushions of excess savings, healthy household balance sheets — these are things that go far in keeping the U.S. out of recession, or at least staving off recession for longer.”What is a recession?Americans feel terrible about the economy right now — worse, at least by some measures, than at the peak of the pandemic-related layoffs in spring of 2020. It’s easy to understand why: The climbing cost of food, fuel and other essentials is eroding living standards. Hourly earnings, adjusted for inflation, are falling at their fastest pace in decades.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Income and Spending Rose Less Than Prices in May

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    Americans’ income and spending failed to keep pace with rising prices in May, the latest sign that the fastest inflation in a generation is chipping away at the bedrock of the economic recovery.Consumer spending, adjusted for inflation, fell for the first time this year, declining 0.4 percent from April, the Commerce Department said Thursday. In addition, spending rose more slowly in the first four months of the year than previously reported, the government said, and after-tax income, adjusted for inflation, fell slightly.The report offered new evidence that the U.S. economy hangs in a delicate balance as the Federal Reserve tries to bring inflation under control. Policymakers want to cool off consumer demand for goods and services, which has outstripped supply, driving up prices. But if the central bank chokes off demand aggressively when prices are already crimping consumption, it could cause a recession.Consumers have hardly stopped spending. Overall demand remains strong, particularly for vacation travel, restaurant meals and other services that many families avoided earlier in the pandemic.Still, several forecasters said Thursday that they now believed U.S. gross domestic product, adjusted for inflation, shrank in the second quarter. That would be the second consecutive decline — a common, though unofficial, definition of a recession. Most economists say the United States has not yet entered a recession under the more formal definition, which takes into account a variety of economic indicators, but they say the risks are growing.The data released Thursday did hint at some potential moderation in inflation. The Personal Consumption Expenditures price index, which the Fed officially targets when it aims for 2 percent inflation on average over time, climbed 6.3 percent from a year earlier, matching the April increase. From a month earlier, it picked up 0.6 percent, a rapid pace as gas prices rose.But the core price index, which strips out volatile food and fuel prices, climbed 4.7 percent over the past year, down slightly from 4.9 percent in the prior reading. That core measure picked up by 0.3 percent from April, roughly matching the previous few months.Policymakers “are probably quietly sitting there and feeling a bit relieved” that core price increases have been moderating, said Ian Shepherdson, the chief economist at Pantheon Macroeconomics. But inflation remains very high, its outlook hinges on variables like the war in Ukraine, and the latest data is unlikely to lead the Fed to change course.“Now is not the time to declare even the hint of potential victory,” Mr. Shepherdson said.Inflation is taking a toll on consumers’ finances, and their economic outlook. Fifty-two percent of American adults say they are worse off financially than they were a year ago, according to a survey for The New York Times conducted June 13-19 by the online research platform Momentive. Ninety-two percent say they are concerned about inflation, including 70 percent who say they are “very concerned.”A line for a sale in New York. Because of inflation, Americans are spending more but getting less.Amir Hamja for The New York TimesUntil recently, there was little sign that consumers’ dour mood was affecting their spending much. But that may be starting to change. Consumer spending, not adjusted for inflation, rose 0.2 percent in May, the weakest gain this year, and spending on goods, where price increases have been fastest, fell.In other areas, consumers are spending more but getting less: Households bought almost exactly the same amount of gasoline in May as in April, for example, but paid 4 percent more for it.Tim Trull put $35 worth of gas in his truck one recent Friday, and was on empty again after a weekend trip to visit his parents 30 miles away. So he is looking for other places to cut back. Trips to the grocery store have become a dull routine: bread, cheese, eggs, milk, whatever lunch meat is on sale. Mr. Trull said he no longer even walked down the meat aisle.“I like my Raisin Bran, but I can’t even buy Raisin Bran,” he said. “Raisin Bran’s almost $7 a box right now.”Mr. Trull, 51, got a 50-cent-an-hour raise at Christmas, but inflation has more than wiped that out — especially because the furniture plant where he works in Hickory, N.C., has begun cutting back on overtime. Now, with talk of a recession, he is worried about losing his job.“I just have some bad feelings that eventually it’ll peter off and they’ll start laying people off again,” he said. “Who’s going to buy furniture when you’re deciding gas, food or a new love seat?”Stories like Mr. Trull’s highlight the risk facing the economy if the job market slows. Despite the dip in May, Americans’ income, in the aggregate, has mostly kept up with inflation thanks to rising wages and strong job growth.Inflation F.A.Q.Card 1 of 5What is inflation? More