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Andrew Stuttaford: Recession: Are We There Yet?


The U.S. economy shrank in the last three months by 0.9%.

This is the second consecutive quarter where the economy has contracted. In the first quarter, GDP, or gross domestic product, decreased at an annual rate of 1.6%.

While two consecutive quarters of negative growth is often considered a recession, it's not an official definition. A nonprofit, non-partisan organization called the National Bureau of Economic Research determines when the U.S. economy is in a recession. An NBER committee made up of eight economists makes that determination and many factors go into that calculation.

The White House has pushed back against calling the current economy a recession. It is no doubt aware of the role the economy is going to play in the midterm elections.

President Biden cited record job growth and foreign business investment as signs of strength in the economy. "That doesn't sound like a recession to me," Biden concluded.

Can the NBER, which is considered to be the "official" judge of when a recession begins, save the day, at least as NPR would doubtless likely see it?

In any event, while it is certainly true that two consecutive quarters of falling GDP would generally be viewed as satisfying the definition of a recession (just as a 20 percent sell-off in share prices is the popular definition of a bear market), that is not a hard and fast rule. Instead, the NBER prefer another rule, which is neither hard nor, in both senses of the word, fast (the NBER can take its time to come up with a determination).

From the NBER report in June 2020:

The usual definition of a recession involves a decline in economic activity that lasts more than a few months.

A few .

The number of quarters is not fixed.

According to the NBER, a recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.


In determining the monthly peak, the committee considers a number of indicators of employment and production. The committee normally views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment.

That employment number is still moving up.

Brian Westbury looks at a chart of the data used by the NBER to determine whether we are in a recession, noting (correctly) that they do not just include GDP.

Of the six indicators, only one is negative - real retail sales, which are coming off a sugar high of unsustainable pandemic checks. Compare these data to the previous five recessions! Best Recession Ever.

He does expect a recession within the next 18-24 months. My own guess is that it will be sooner than that.

Also note that Westbury adds that he [doesn't] agree with a single policy of this administration. Bad policy = Bad Outcomes. However, we are not in a recession, yet.

However, it's worth taking a look at this post of his too.

An extract:

The big drag in the second quarter was a slowdown in the pace of inventory accumulation, which, all by itself, reduced real GDP growth by two percentage points; excluding inventories, real GDP would have grown in Q2. However, inventories were not the only soft part of the economy. On an inflation-adjusted basis, home building dropped at a 14% annual rate while commercial construction fell at an 11.8% rate. Business investment in equipment also declined, as did consumer spending on goods. Meanwhile, consumer spending on services rose as did net exports, and business investment in intellectual property. Although we do not believe the economy entered a recession in the first half of 2022, we are certainly not saying the GDP report was good news. Core GDP, which includes consumer spending, business investment, and home building, was unchanged in Q2, the softest showing since the COVID shutdowns. And the economy is also being ravaged by inflation, with the GDP deflator up at an 8.7% annual rate in Q2, the fastest pace for any quarter since 1981 . . .

Meanwhile, Albert Edwards, an analyst, who, to borrow part of a line from P. G. Wodehouse, is never difficult to distinguish from a ray of sunshine," tweets:

The strong payrolls report is often cited as evidence that the US economy can't possibly in recession. It depends though which ‘jobs report' you look at. The Household Survey measure, which is more sensitive to turning points, is certainly ALREADY consistent with recession.

So there's that.

The Manhattan Institute's Brian Riedl, a regular contributor to Capital Matters, has a good take:

I think the left is correct that this is a rare instance where we are not technically in a recession despite the GDP data.

But the right is correct to be frustrated because there is no way a GOP administration would be given this nuance by the usual suspects.

That, as people, say, is the tweet.

Riedl continues:

Whether were in a technical recession is less interesting to me than the following 3 questions:

1) Are jobs plentiful? (Yes – good)

2) Are real wages rising? (Falling fast – bad)

3) Is inflation hitting fixed income fams? (Yes – bad)

Fair enough, on all three counts, although I don't think that jobs will remain plentiful for much longer. It continues to be worth noting that only now has the (seasonally adjusted) number of employed (excluding farmworkers) reached its pre-pandemic peak. That's despite the fact that the working-age population has increased by around 2 million over the same period.

Other clouds on the horizon include growing signs of shakiness in the housing market, falling consumer confidence, certain areas of commodity-price decline, the "wealth effect" of a weaker stock market (despite a recent, partial rally), although, on a longer view, it still continues to be at a high level. Then throw in higher interest rates (although note that they are still still negative in real terms) and inflation, both of which have already had their effect on the preceding (incomplete) list of woes, as well as the effects of the Ukraine war. It is hard to be optimistic.

It's even harder to be so when it seems that increased taxes and increased spending, much of it wasteful, seems to be on the way. No time would be a good time for the unconvincingly named Inflation Reduction Act, but the current moment seems worse than most.

Andrew Stuttaford is the editor of National Review's Capital Matters.

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Posted: July 29, 2022 Friday 07:16 AM