It’s worth noting, however, that the GDP grew strongly in the second quarter—up 7.8 percent, according to the BEA, which applied an 8.7 percent inflation adjustment. For the first quarter, the BEA numbers were 6.6 percent growth and an 8.2 percent inflation adjustment.
If the BEA’s inflation adjustment shrinks—gasoline prices, a key factor, are down 12 per cent since June 30, according to AAA—and the GDP keeps growing strongly, things could look a lot better three months from now.
No, I’m not trying in any way to promote President Biden’s “there’s no recession” sales pitch. I’m calling these numbers as I see them.
However, to lots of people, including many of my media colleagues, two straight quarters of negative real GDP growth means we’re in a recession.
Regardless of the last two GDP numbers, I don’t think we’re in a recession now, and we may end up being lucky enough not to have one at all.
The official arbiter of when recessions begin and end is the Business Cycle Dating Committee, which is part of the National Bureau of Economic Research.
And if you consult the people on the dating committee, you’ll see that six months of declining real GDP does not a recession make.
“To me, the two-quarter criterion is irrelevant,” says Bob Hall, a Hoover Institution senior fellow and Stanford University economics professor who has chaired the committee since its inception in 1978.
How do Hall and the rest of the committee define a recession? “In a recession,” Hall told me, “economic activity is significantly depressed and is spread across the economy for more than a few months.”
In an FAQ on its website, the NBER specifically rejects the definition of a recession as two straight down quarters.
“There are several reasons,” the NBER says. “First, we do not identify economic activity solely with real GDP, but consider a range of indicators. Second, we consider the depth of the decline in economic activity. The NBER definition includes the phrase, ‘a significant decline in economic activity.’ Thus real GDP could decline by relatively small amounts in two consecutive quarters without warranting the determination that a peak had occurred.”
Does it look to you like the U.S. economy comes anywhere close to having significantly depressed economic activity that’s been spread across the economy for more than a few months? It doesn’t look like that to me.
For starters, the unemployment rate is hanging in at 3.6 percent, the lowest rate in at least 20 years. And although wages aren’t rising as fast as our highest-in-40-years inflation rate, they’re rising at around 6 percent a year, the highest rate since at least 1998.
I’m reasonably sure they’ll keep rising even after the inflation rate falls, because recent layoff announcements notwithstanding, there are a lot more jobs available than there are people looking for work.
In one crucial economic and social area — gasoline prices — inflation has started to fall. The average national price for a gallon of regular gas on Thursday was $4.278, according to AAA.
Yes, that’s 35 percent more than a year ago, but it’s down 15 percent from the peak of $5.016 on June 14. So most of the fall since mid-June wasn’t recognized in Thursday’s inflation adjustment for GDP in the second quarter, which ended June 30.
Industrial production is still doing well, with the Industrial Production Index at its highest level since at least 1920, according to FRED Economic Data from the St. Louis Fed.
Put all of this together, and you see why I don’t think we’re in a recession.
On Wednesday, when the Federal Reserve raised short-term interest rates by the expected 0.75 percent, Fed Chair Jerome Powell took note of the strong labor market and said he didn’t think we’re in a recession now.
You can have problems with the Fed, which has found itself having to play catch-up because in hindsight, it kept interest rates too low for too long. But I don’t think for a minute that Powell would lie in his news conference by saying he doesn’t think we’re in a recession now if he really thinks we’re in one.
I think one reason for our recession obsession is that inflation and economic uncertainty are making people far more open to bad news than they’d normally be.
In addition, we have millions of people who are struggling to cover their inflated gasoline and food bills and are understandably scared and upset about prospects for themselves, their families and our country as a whole. You can see why many of them might think that a recession is inevitable, if not already here.
And finally — please forgive my skepticism — talking and writing about a recession, real or imagined, increases readership and viewership for media enterprises and is just more interesting than economic news normally is.
“Recoveries tend to be nice and smooth, and boring from a media point of view,” Hall told me. “Recessions are exciting.”
In addition, there are political advantages to promoting the recession idea. Talking about a recession lets both mega-right-wing Republicans and ultra-left-wing Democrats complain about President Biden supposedly leading the economy off a cliff.
Recession talk gives conservatives a peg to pitch their cut-taxes solution and lets liberals promote their spend-more-and-raise-taxes-on-the-rich solution.
Look, I’m not saying that things are great or that the economy isn’t going to deteriorate. Or that Bob Hall’s committee isn’t going to decide sometime next year that the U.S. economy peaked this summer or fall.
What I am saying is that if you look at what the Business Cycle Dating Committee says a recession is, a definition that’s generally accepted by serious economic thinkers, you’ll see that we’re not in a recession now. Regardless of what we heard on Thursday morning.
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