- The White House recently explained why two quarters of negative growth don’t always signal a recession.
- However, a growing number of voices have accused the administration of changing the definition of recession.
- The economy is currently adding too many jobs to be officially in recession.
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There’s a lot of talk about the recession right now, but Americans can’t even agree on the most basic part of the debate: What exactly is a recession?
This week will be intense for US economists. The preliminary reading of second-quarter economic growth, possibly the most anticipated data point of the week, will be released on July 28. The expectations are bleak. The consensus forecast sees gross domestic product growing at an annualized rate of just 0.5%, and the Atlanta Fed projects that the economy actually shrank by 1.6%.
If the most dire prospects ring true, the US economy will have contracted throughout the first half of 2022.
This has many Americans on edge. The core definition of a recession has long been consecutive quarters of negative growth, meaning Thursday’s report could match many observers’ criteria for a recession. Americans are already feeling pretty pessimistic about the economy. Should the next GDP print turn out to be negative, the warnings of a catastrophic recession will only grow louder.
Whether they’re actually right is another question entirely, and the answer is a resounding “no.” The National Bureau of Economic Research is the semi-official arbiter of when America’s recessions begin and end, and its criteria are much more complicated than the two-quarters rule. The organization looks for a “significant decline in economic activity spread across the economy and lasting more than a few months” before calling it a recession.
In other words, it takes much more than two-quarters of negative GDP for the US to be in recession. This has not prevented the issue from becoming a political battleground. The White House made the first move on July 21, publishing a blog post from its Council of Economic Advisers outlining several reasons why the country is not in crisis. Chief among them was the NBER’s definition, but board members also cited strong job creation and industrial production as signs that the economy was moving forward.
The blog post was intended to clarify the official criteria for a recession, but led to accusations that the White House was tweaking the definition to soften the blow of a potentially nasty GDP print. Asked Friday if the Biden administration was trying to change the definition, press secretary Karine Jean-Pierre said the strength of the labor market and other indicators “are not what we generally see when we talk about recession or until and all pre-recession”.
Biden addressed the debate on Monday, predicting that the United States will avoid a recession and similarly touting the upturn in the labor market as a sign of good economic health.
“We’re not going to be in recession, in my opinion [un]”The employment rate remains one of the lowest we’ve had in history,” he said. “My hope is that we go from this rapid growth to steady growth.”
Meanwhile, Republicans are using the confusion to bash Democrats. Senate Minority Leader Mitch McConnell took to the Senate floor Monday to criticize the White House blog post, calling it “a frantic effort to redefine the word recession.”
However, the Council of Economic Advisers did not so much redefine “recession” as repeat the definition used by the same body that dates business cycles. The problem for Democrats is that Americans have a wide range of criteria for a recession, and the party has little time to spell out the true definition before voters make up their minds.
The economy has its fair share of weaknesses. Inflation remains at four-decade highs, the Fed is rapidly raising borrowing costs, housing is unaffordable for millions, and the wealth gap is still historically wide.
But the US is far from a recession. The economy is adding too many jobs and Americans are spending too much money for the country to currently be in a slump. The future of the economy remains murky and the jury is still out on whether a recession will materialize in 2023.
For now, the recovery is progressing, albeit at a slower pace than before.