Is the US economy headed for a recession, or is it already in one?
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 economic growth shrank 1.6% in the April-June period.
Economic output has already fallen over the first three months of the year, with GDP – the broadest measure of goods and services produced in the US – falling 1.6%, the worst performance since spring 2020, when the economy was still deep and the pressure was. of the COVID-induced recession.
Recessions are technically defined by two consecutive quarters of negative economic growth and are 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 recessions.
HOW HOUSING FEEDS SEARING-HOT INFLATION
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 across the economy and that lasts more than a few months.” Still, the NBER—the semi-official arbiter—can’t confirm it right away because it usually waits up to a year to call it.
The NBER also stressed that it relies on more data than GDP to determine 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 account the depth of any decline in economic activity.
“Thus, real GDP may decline by relatively small amounts in two consecutive quarters without warranting the determination that a peak has occurred,” the non-profit said on its website.
The committee does not meet regularly, only when the members decide that it is justified.
There are conflicting signs about the health of the economy: The number of Americans applying for unemployment benefits has gradually increased, companies have announced layoffs or hiring freezes, and the housing market is expanding. At the same time, unemployment remains near a historic low, and consumers are still spending heavily, despite blazing hot inflation.
Economists widely agree that the risks of a recession have risen significantly this year and that avoiding a downturn in the near future will be increasingly difficult as the Federal Reserve tries to bring inflation under control by boosting consumer demand. cooled down. Central bank policymakers raised the benchmark interest rate by 75 basis points in June for the first time since 1994 and have signaled that another increase of that size is possible in July.
The FED is preparing another MEGA-sized rate hike, risking a deeper NOISE
Hiking interest rates tend to create higher consumer and business credit rates, which slows the economy by forcing employers to cut spending. Mortgage rates are already approaching 6%, the highest since 2008, while some credit card issuers have raised their rates to 20%.
Policymakers remained confident they could slow growth enough to tame inflation without dragging the economy into recession. But Fed Chairman Jerome Powell told reporters last month that the lack of price stability was a “bigger mistake” than crippling growth and causing a recession.
US President Joe Biden addresses the 76th session of the UN General Assembly on September 21, 2021 at the U.N. Headquarters in New York City. ((Photo by Timothy A. Clary-Pool/Getty Images)/Getty Images)
“The Federal Reserve is in a difficult spot, as inflation is still raging and the economic landscape has deteriorated dramatically since its last meeting in mid-June,” said Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and former adviser at the Dallas Fed. “All signs point to an economy in recession. Most notably, US jobless claims have risen more than 50% since their mid-March lows above a threshold associated with recessions in cycles going 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 constitutes a recession.
In a blog post last week, White House Council of Economic Advisers President Cecilia Rouse and member Jared Bernstein argued that the economy is nowhere near a recession as defined by the NBER.
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“While some argue that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle,” they wrote, noting that a “holistic” approach would Work considered. Market, consumer and business spending, industrial production and income. “Based on these data, it is unlikely that the decline in GDP in the first quarter of this year – even if it is followed by another GDP decline in the second quarter – will indicate a recession.”
