Is the US economy in recession, or is it already there?
That’s the big question ahead of the Commerce Department’s release on Thursday of the highly anticipated second-quarter gross domestic product reading, which is expected to show that economic growth shrank 1.6% in the period from April to June.
Economic output has fallen in the first three months of the year, with GDP – the largest measure of goods and services produced in the US – falling 1.6%, the worst performance since the spring of 2020, when the economy was still in dire straits. from the recession caused by COVID.
A recession is technically defined by two consecutive quarters of negative economic growth and is characterized by high unemployment, low or negative GDP growth, falling incomes and slowing retail sales, according to the National Bureau of Economic Research (NBER), which tracks the decline.
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People walk outside the New York Stock Exchange (NYSE) on July 25, 2022 in New York City. ((Photo by Spencer Platt/Getty Images)/Getty Images)
If the economy declines in the second quarter, it may meet the technical criteria for a recession, which requires “a significant decline in economic activity that is widespread throughout the economy and lasts for more than a few months.” Still, the NBER – the semi-official arbiter – can’t confirm right away because it usually waits up to a year to make that call.
The NBER also stressed that it relies on more data than GDP in determining whether there is a recession such as unemployment and consumer spending, which remained strong in the first six months of the year. It also takes into consideration any decline in economic activity.
“Thus real GDP can decrease by a relatively small amount in two consecutive quarters without warranting the determination that the peak has occurred,” said the non-profit on its website.
The committee does not meet regularly, only when the members decide that it is necessary.
There are conflicting signs about the health of the economy: The number of Americans filing for unemployment benefits is slowly increasing, companies have announced layoffs or hiring freezes, and the housing market is soft. At the same time, unemployment remains near historic lows, and consumers are still spending heavily, despite scorching-hot inflation.
Economists widely agree that the risk of a recession has risen sharply this year and that avoiding a downturn in the near term will be more difficult as the Federal Reserve tries to control inflation by stimulating consumer demand. The central bank raised its benchmark interest rate by 75 basis points in June for the first time since 1994 and indicated that an increase of that magnitude was possible in July.
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Hiking interest rates tend to create higher levels of consumer and business borrowing, which slows the economy by forcing businesses to cut spending. Mortgage rates have approached 6%, the highest since 2008, while some credit card issuers have ratcheted up their rates to 20%.
Policymakers remain confident that they can slow growth enough to tame inflation without dragging the economy into recession. But Fed Chairman Jerome Powell told reporters last month that failure to restore price stability would be a “huge mistake” than crushing growth and causing a downturn.
US President Joe Biden speaks at the 76th Session of the United Nations General Assembly on September 21, 2021 at the United Nations headquarters in New York City. ((Photo by Timothy A. Clary-Pool/Getty Images) / Getty Images)
“The Federal Reserve is in a tough spot, because inflation is still raging and the economic backdrop has dramatically deteriorated since its last meeting in mid-June,” said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former advisor at Dallas Fed. “All signs point to the economy in recession. Most importantly, US unemployment claims have risen more than 50% since their mid-March lows surpassing a threshold associated with recession in the cycle back to 1968.”
The White House is now trying to get ahead of what is likely to be a dismal GDP report, trying to ease voters’ concerns about the economy by reframing what has become a recession.
In a blog post last week, White House Council of Economic Advisers chairwoman Cecilia Rouse and member Jared Bernstein said the economy is nowhere near a recession as predicted by the NBER.
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“Although some maintain that two consecutive quarters of real GDP decline is a recession, that is not the official definition or the way economists evaluate the state of the business cycle,” they wrote, noting that a “holistic” approach overlooks the workforce. market, consumer spending and business, industrial production and income. “Based on this data, it is unlikely that the decline in GDP in the first quarter of this year – even if followed by another decline in GDP in the second quarter – indicates a recession.”
