US economy shrinks in Q2

The US economy contracted at a moderate pace than initially thought in the second quarter as consumer spending blunted some of the drag from a slower pace of inventory accumulation, dispelling fears that a recession was underway.

Gross domestic product shrank at a 0.6 per cent annualised rate last quarter, the Commerce Department said in its second estimate of GDP on Thursday. That was an upward revision from the previously estimated 0.9 per cent pace of decline. The economy contracted at a 1.6 per cent rate in the first quarter.

Economists polled by Reuters had expected that GDP would be revised slightly up to show output falling at a 0.8 per cent rate.

While the two-straight quarterly decreases in GDP meet the standard definition of a technical recession, broader measures of economic activity suggest a slow pace of expansion rather than a downturn.

Underlying retail sales were much stronger than initially reported in May, and that strength persisted through June and July. Industrial production raced to a record high in July, while business spending on equipment was solid. The labour market continues to churn out jobs at a brisk clip.

The National Bureau of Economic Research, the official arbiter of recessions in the United States, defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."