The US economy has declined 0.9% over the past three months.
This is the second consecutive quarter where the economy has contracted. In the first quarter, GDP or GDP decreased at an annual rate of 1.6%.
While two consecutive quarters of negative growth are often considered bearish, this is not the official definition. A non-profit, nonpartisan organization called the National Bureau of Economic Research determines whether the U.S. When is the economy in recession? An NBER committee made up of eight economists makes this determination and several factors go into that calculation.
The White House has insisted against calling the current economy a recession. There is no doubt that the role of the economy in the mid-term elections is well known.
President Biden cited record job growth and foreign trade investment as a sign of strength in the economy. “It doesn’t sound like a recession to me,” Biden concluded.
Could it be a recession if so many jobs are being created?
Treasury Secretary Janet Yellen noted in a recent appearance on NBC Meet the Press that while two consecutive quarters of negative growth are generally considered recessions, conditions in the economy are unique.
“When you’re creating about 400,000 jobs a month, it’s not a recession,” she said.
Still, any way you cut it, the economy has weakened.
The GDP report showed that business was snatched away. Undoubtedly, borrowing has become more expensive as the Federal Reserve raises interest rates. So there is less money to invest. The main concern is whether this will start affecting job growth.
Retailers had plenty of inventory to work with, so those businesses were also spending less. And housing, which is heating up during the pandemic, is starting to cool as mortgage rates rise.
However, there were bright spots. Wages kept rising and people were also taking care of themselves by going out to eat in restaurants and traveling. Total income increased.
But fears of a recession have increased significantly as the Fed continues to aggressively hike interest rates to fight high inflation.
And the economic figures have been pretty mixed.
For example, during the last recession, the economy was losing jobs. But the US economy is adding jobs month after month, as Yellen said.
“This is not an economy that is in recession,” Yellen said. “A recession is broad-based weakness in the economy. We just aren’t seeing it.”
Yellen also pointed to consumer spending, which remains strong, and highlighted positive data on Americans’ credit quality.
White House doesn’t like the word recession
The White House has worked hard to remind people that just two quarters of negative growth does not mean the economy is in recession.
As the midterm elections draw closer, the White House is acutely aware of a country going through a recession, where Americans are struggling financially. But with the price of many things skyrocketing and inflation hitting a decade high, a lot of Americans are already taking it on the chin.
The majority, or 65%, of registered voters who responded to a recent Morning Consult/Politico poll said they believe we are already in one.
What are bearish indicators?
NBER says the “traditional definition” of a recession is “a significant drop in economic activity that extends across the economy and that lasts for more than a few months.”
Employment is a part of the group’s calculations, and the labor market has continued to show signs of strength. In June, the unemployment rate held steady at 3.6%, close to its pre-pandemic low, and the economy added 372,000 jobs.
“I don’t think NBER will look at the data right now and say the economy is in recession,” says Michael Gapen, chief US economist at Bank of America Securities.
But it’s not clear how much Americans will care about whether the current economy meets a specific, high-tech definition.
Parts of economy are slowing already
What is clear to all is that the economy is slowing, prices are rising at their fastest pace in decades, and the housing market is beginning to cool as the Fed aggressively raises interest rates. On Thursday, the central bank raised rates by an additional three-quarters of a percentage point.
Economists acknowledge Thursday’s headline numbers — how much the economy grew or shrank by percentage — are likely to receive the most attention, but they say it’s important to dig into the underlying data.
Mastercard Economics Institute in the U.S. “It’s the pieces of the puzzle when you’re looking at GDP,” says Michelle Meyer, chief economist at the U.S.
Among other things, we will see whether household spending, which accounts for 70% of all economic activity, keeps pace with inflation.
But as Fed Chairman Jerome Powell and other policy makers have acknowledged, at a time when there is so much uncertainty, and when so many Americans are facing economic pain, sentiment and expectations matter and the economy is losing its key. Not many jobs.
“I think a lot of it comes down to jobs,” Meyer says. “Do you have a job. Do you expect to keep your job. And what this could mean for your future income path.”