GDP Declines For Second Quarter In A Row, Flashing Strong Recession Signal

The U.S. economy shrank by an estimated 0.9% from April to June, marking the second straight quarter of negative economic growth and flashing a strong recession signal.

What Happened: Gross domestic product, or GDP, dropped 0.9% in the second quarter, according to a Thursday advance estimate from the Bureau of Economic Analysis.

The number came in well below average economist expectations for a gain of 0.3% (Dow Jones) to 0.5% (consensus estimate).

A second estimated second-quarter GDP number based on more complete data will be released Aug. 25. 

The fall comes on the heels of a 1.6% decline in the first quarter. Two consecutive quarters of negative growth is generally considered a strong signal of a recession. GDP is the broadest measure of the economy and gauges the total amount of goods and services that were produced during a given period.

The National Bureau of Economic Research officially declares recessions and is unlikely to announce anything for at least a couple of months. 

Why It Matters: The Federal Reserve has been hiking rates in an effort to tame rising inflation. The Fed on Wednesday hiked rates by 0.75%, bringing its target fed funds rate up to a range of 2.25% to 2.5%.

The central bank said it will continue to reduce Treasury securities, agency debt and agency mortgage-backed securities from its balance sheet on a monthly basis.

Related Link: Federal Reserve Issues Second Straight 0.75% Interest Rate Hike: The Important Signal It's Sending On Inflation

"Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the Fed said in a statement.

SPY Price Action: SPDR S&P 500 SPY was up 0.09% at $401.40 at press time, according to data from Benzinga Pro.

Photo: rabbimichoel from Pixabay.