(Kitco News) – It might not be an official recession just yet, but the U.S. economy contracted for the second consecutive quarter.
Thursday, Commerce Department said in its advanced reading that U.S. Gross Domestic Product fell 0.9% in the second quarter, missing market estimates for a 0.4% increase.
“The decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by increases in exports and personal consumption expenditures,” the report said.
The decline in economic activity comes as the U.S. GDP contracted 1.6% in the first quarter.
The gold market, is holding solid gains following the latest economic report. August gold futures last traded at $1,741.50 an ounce, up 1.32% on the day.
Officially the National Bureau of Economic Research (NBER) is the agency that would official declare a recession, which usually happens after months of research and debate; however the traditional definition is when an economy contracts for two consecutive quarters.
Analysts have said that a recession in the U.S. would be positive for gold as it could force the Federal Reserve to slow the pace of its rate hikes at a time when inflation remains persistently elevated.
However, not all economists expect the Federal Reserve to ease up on its aggressive rate hike stance.
Andrew Hunter, senior U.S. economist at Capital Economics, said that inflation remains a major issue that the U.S. central bank needs to address.
“Overall, the data confirm that underlying growth has slowed sharply, but with labour market conditions still holding up and inflation far too high, that won’t convince the Fed to dial back its tightening plans,” he said.
According to market analysts, the report showed that inflation is having a significant impact on economic growth. The report said that the quarter GDP Price Index rose 8.7%, up from the first quarter reading of 8.2. Economists were expecting an increase of 7.9%.
“The miss appears to be largely driven by higher inflation dragging down real growth. The deflator at 8.9% took a whole percentage point off the headline compared to what was expected,” said Adam Button, chief currency strategist at Forexlive.com.
The report also noted that personal consumption continues to fall, increasing 1.1% in the second quarter, down from 1.8% from the first quarter.
The report also showed that U.S. trade is starting to rebound. Exports increased 18% in the second quarter while imports increased 3.1%.
However, rising interest rates are impacting investment spending, especially from consumers. The report said that home investments dropped 14% in the second quarter, down from a0.4% rise in Q1.
On the business side, investment in equipment fell 2.7%.
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