EXPLAINER: How do we know when a recession has begun?

WASHINGTON (AP) — The economy shrank in the first half of this year, the government confirmed in a report Thursday, underscoring fears of a broad-based slowdown that could lead to a recession.

At the same time, the number of people seeking unemployment benefits — a figure that often reflects the pace of layoffs — fell to a five-month low. The drop suggests that companies are holding onto their staffs, despite the slowdown in growth, and that those who do get laid off are quickly finding new jobs.

Hiring remains strong and the unemployment rate is near a 50-year low. Given the strength of the job market, few economists think we are in a recession now. With consumers managing to keep spending and the trade deficit narrowing, economists expect the economy grew — albeit slowly — in the July-September quarter.

Six months of contraction is a long-held informal definition of a recession. Yet nothing is simple in a post-pandemic economy in which growth is negative but the job market strong. The economy's direction has confounded the Federal Reserve's policymakers and many private economists since growth screeched to a halt in March 2020 as COVID-19 struck and 22 million Americans were suddenly thrown out of work.

Inflation, meantime, remains near its highest level in four decades, though gas costs and other prices have eased in recent weeks. Inflation is still so high that despite pay raises many workers have received, Americans’ purchasing power is eroding. The pain is being felt disproportionately by lower-income and Black and Hispanic households, many of whom are struggling to pay for essentials like food, clothes, and rent.

Federal Reserve Chair Jerome Powell has underscored that the central bank will raise its key interest rate as high as needed to wrestle inflation back down to its 2% target. Powell and other...