U.S. economy shrinks again. Is it a recession?

The U.S. economy contracted at an annual rate of 0.9% in April through June, marking the second straight quarter of decline, a common definition of a recession.

But it will take months before we know whether the U.S. is formally in a recession.

The National Bureau of Economic Research has the task of declaring a recession, and the NBER's definition is different than the commonly used one. The bureau says a recession involves "a significant decline in economic activity that is spread across the economy and lasts more than a few months."

The second quarter decline in gross domestic product followed a 1.6% dip in the first three months of the year. The economy has weakened since the recovery year of 2021, when the U.S. roared back from the brief COVID-19 pandemic recession the previous year.

Inflation, which is at a 41-year-high, has slowed consumer spending. The Federal Reserve's interest rate hikes - designed to curb price increases - have made taking out mortgages, car loans, and business investment loans more expensive. The housing market has taken an ice bath, and new home construction has tumbled.

But the economy is sending mixed signals. Over the first half of the year, the U.S. economy added 2.7 million jobs. The unemployment rate in many states, including Minnesota, is at a record low.

Gross domestic product has many ingredients: consumer spending, government outlays, business investment, inventories, the value of exports minus imports, and many more data points. Those data can't be collected quickly, meaning Thursday's figure is only an estimate.

It takes months for the final tally, and government often revises its initial GDP figures. That makes it impossible to know in the moment whether a recession is happening.

If a recession is brief, such as the 2020 downturn, the U.S. economy has started growing again before the NBER made the recession official.

Regardless, many Americans are convinced that the U.S. is already in a recession. In a Morning Consult poll conducted July 8-10, 65% of respondents said the U.S. economy is in recession. Just 20% said it is not.

The GDP data may be important officially, but it typically has little effect on people's personal financial situations, said Brett Angel, a senior financial adviser at Marks Group Wealth Management in Minnetonka.

"I don’t think it’s as significant as a lot of people feel whether or not that GDP number for the second quarter means we’re in a recession currently," he said. "I think emotionally it matters a lot. I think it’ll drive short-term market movements. But what we’re really reminding clients is, a lot of these things are normal in the longer-term economic cycles.

"Recessions are normal. Slowing economic activity is normal. Usually, that doesn’t require major portfolio changes or strategic changes. We revisit those with clients, but you want to remember that, structurally speaking, a recession doesn’t mean there’s something inherently wrong."