US economy shrunk at slower pace in second quarter, new estimate shows

The U.S. economy shrunk at a slower pace between April and June than the federal government initially calculated, according to revised data released Thursday by the Bureau of Economic Analysis (BEA).

The BEA said U.S. gross domestic product (GDP) fell at an annualized rate of 0.6 percent during the second quarter of 2022. That’s down 0.3 percentage points from the 0.9 percent decline the agency estimated in July.

The BEA issues three estimates of each quarter’s change in GDP to incorporate new and revised data. The agency said the second quarter dip in economic activity was less severe than first believed after looking at broader, more complete data on consumer spending and private inventory investments.

Personal consumption expenditures — a catchall for consumer spending — rose 1.6 percent in the second quarter of 2022, according to revised figures, up from an initial estimate of 1 percent.

Spending on goods fell far less than first estimated, dropping 2.4 percent between April and June instead of the 4.4 percent decline initially estimated. Spending on services rose 3.6 percent, 0.6 percentage points below the BEA’s first estimate.

While the decline in growth was less severe than first estimated, the U.S. economy still appeared to contract for two consecutive quarters after Thursday’s revisions. 

Two straight quarters of negative GDP growth has long been a rule-of-thumb threshold for a recession in the U.S. But economists have warned that the strength of the U.S. labor market and other pockets of the economy make it unlikely the country is currently in recession.

“With many still asking whether the economy is in a recession, it’s important to reiterate that my preferred ‘triple P’ recession rule isn’t satisfied: a recession is a persistent (lasting in time), profound (in magnitude) and pervasive (across regions and sectors) contraction in economic activity,” wrote Gregory Daco, chief economist at EY-Parthenon, in a Thursday analysis.

“The labor market is cooling, but companies are still hiring; businesses are still investing, even if they’re being more cautious in their decisions; and consumers are still spending (with a grin) in the face of high inflation.”

The U.S. still added more than 1 million jobs during the second quarter, even as GDP shrunk. Gross domestic income, another measure of economic output, rose at an annualized rate of 1.5 percent during the second quarter after a gain of 1.8 percent in the first quarter.

Even so, Daco warned the U.S. faces higher recession risks as summer ends, the economy cools down and higher interest rates set by the Federal Reserve weigh heavier on the pace of growth.

“As the surge in summer outlays fades, we anticipate seeing a greater drag on consumer spending, residential activity and business investment from inflation, easing job growth, reduced disposable income and rising interest rates. We continue to anticipate the US economy will experience a recession toward year-end with GDP growth averaging around 1.4% this year and slowing to around 0.4% in 2023.”

Updated at 9:53 a.m.