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(Kitco News) – It may not be an official recession yet, but the U.S. economy shrank for the second quarter in a row.
On Thursday, the Commerce Department said in its extended reading that U.S. gross domestic product fell 0.9 percent in the second quarter, missing market forecasts for a 0.4 percent increase.
“The decline in real GDP reflected declines in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment, which were partially offset by increases in exports and personal consumption expenditures,” it said in the report.
The drop in economic activity comes after US GDP shrank 1.6% in the first quarter.
The gold market is holding on to solid gains after 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 will officially declare a recession, which usually happens after months of study and debate; but the traditional definition is when the economy contracts for two consecutive quarters.
Analysts said a US recession would be positive for gold as it could force the Federal Reserve to slow the pace of interest rate hikes at a time when inflation remains persistently high.
However, not all economists expect the Federal Reserve to soften its stance on aggressive interest rate hikes.
Andrew Hunter, senior U.S. economist at Capital Economics, said inflation remains a major issue for the U.S. central bank to address.
“Overall, the data confirms that underlying growth has slowed sharply, but with labor market conditions still holding and inflation too high, this will not persuade the Fed to back off its tightening plans,” he said.
According to market analysts, the report shows that inflation has a significant impact on economic growth. The report said the GDP price index for the quarter rose 8.7 percent from the first quarter’s figure of 8.2. Economists had expected an increase of 7.9%.
“The gap appears to be largely due to higher inflation, which is dampening real growth. The 8.9% deflator took a full percentage point off the headline compared to expectations,” said Adam Button, chief currency strategist at Forexlive.com.
The report also noted that personal consumption continued to decline, increasing 1.1 percent in the second quarter, down from 1.8 percent in the first quarter.
The report also showed that US trade is beginning to recover. Exports increased by 18% in the second quarter, while imports increased by 3.1%.
However, rising interest rates are having an impact on investment spending, especially on the consumer side. The report said residential investment fell 14% in the second quarter, down from a 0.4% rise in Q1.
On the business side, investments in equipment decreased by 2.7%.
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