In the second quarter, the US economy contracted at a more moderate pace than originally expected, as consumer spending eased the impact of a slowdown in inventories, dispelling fears that a recession had begun, Reuters reported.

Gross domestic product contracted 0.6% year-on-year last quarter, according to a Commerce Department report, the government said in its second GDP estimate. This was an upward revision from the previously assumed rate of decline of 0.9%. The economy contracted 1.6% in the first quarter. Economists polled by Reuters had expected GDP to be revised up slightly and show a 0.8% fall in output.

The average GDP in April-June increased by 0.4% compared to 0.1% in the first quarter.

Income growth was supported by high profits, as well as rising wages against the background of a tense situation in the labor market.

National after-tax profit before stock estimates and capital consumption adjustments increased $284.9 billion, or 10.4%, accelerating from a 1.0% growth rate in January-March. Profit was 11.9% higher than a year ago.

The National Bureau of Economic Research, the official arbiter of US recessions, defines a recession as a significant decline in economic activity throughout the economy, lasting more than a few months, usually noticeable in output, employment, real income, and other indicators.

However, the risk of a recession has risen as the US Federal Reserve aggressively raises interest rates to cool demand to curb inflation, hurting both business and consumer sentiment. Since March, the US central bank has raised its discount rate by 225 basis points.

Fed Chairman Jerome Powell's speech Friday at the annual global central bank conference Jackson Hole in Wyoming could shed light on whether the US central bank can trigger an economic slowdown without triggering a recession.

The labor market is the key piece to this puzzle. While interest-sensitive industries such as housing and technology are laying off workers, wide-ranging job cuts have yet to materialize, leaving the overall job market tight.

A separate Labor Department report on Thursday showed initial state jobless claims fell by 2,000 to a seasonally adjusted 243,000 for the week ended Aug. 20. Since its initial claims hit an eight-month high of 261,000 in mid-July, it has hovered around the 250,000 mark.

The number of people receiving benefits after the first week of assistance fell by 19,000 to 1.415 million in the week ended 13 August. The so-called ongoing claims, which are an indicator of the employment rate, cover the week during which the government polled households to determine the unemployment rate in August.

The unemployment rate fell to a pre-pandemic low of 3.5% in July from 3.6% in June. At the end of June there were 10.7 million vacancies, that is, there were 1.8 vacancies for every unemployed person.