Is the U.S. in a Recession?

  • Following Thursday’s negative gross domestic product (GDP) report, recession fears are running hotter than ever.
  • GDP fell 0.9% last quarter, marking a second straight quarter of falling economic growth, a historical indicator of a recession.
  • Despite this, impressive job growth and consumer spending has some economists and especially the White House, claiming the country isn’t in a recession.
Is the U.S. in a recession? - Is the U.S. in a Recession?

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After Thursday’s gross domestic product (GDP) report came in expectedly negative, the question making rounds across the country remains: Is the U.S. in a recession?

Two consecutive quarters of negative production has long been the benchmark for a recession. This seems reasonable, as falling production typically reflects a tightening monetary environment, one in which companies are more likely to slow hiring and production.

This time around, however, things aren’t quite as clear cut. Despite months of recession fears amid rising inflation and aggressive contractionary policy from the Federal Reserve, there are signs that demand in the country isn’t taking the nosedive many recession-decriers predicted. This has resulted in a conflicted gap between those who believe the country is receding and those who feel otherwise.

GDP fell 0.9% in Q2 of this year, adding to Q1’s 1.6% drop. The White House, prepared for the announcement, attempted damage control roughly a week ahead in what some have called an attempt to redefine a recession.

In a July 21 blog post titled “How Do Economists Determine Whether the Economy Is in a Recession?” White House Economists argue a broader view of the economy doesn’t support a recession.

“While some maintain 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. Instead, both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data—including the labor market, consumer and business spending, industrial production, and incomes. Based on these data, it is unlikely that the decline in GDP in the first quarter of this year—even if followed by another GDP decline in the second quarter—indicates a recession.”

Is the U.S. in a Recession?

While it’s easy to claim this is an elaborate PR stunt the White House is using to save face, it makes a fairly strong case. Real spending, unemployment and even industrial production have grown this year. The National Bureau of Economic Research (NBER), which makes the official call on recessions in the U.S. (albeit frequently a year late), considers these variables key recession indicators. Despite a general economic slowdown, consumers haven’t felt the need to cut back spending habits.

Jobs have long been President Joe Biden’s administration’s greatest point of pride. And that’s for good reason. Unemployment is currently trending around 3.6%, the lowest in nearly half a century. 1.1 million jobs were created in the second quarter of this year. That’s more than three times greater than in any three-month period heading into a recession. Then, consider rising wages that, while not quite keeping pace with inflation, contribute another layer of believability to the White House’s claims.

So, Who’s Right?

Despite Biden’s promising claims, it’s hard to say all is well on the home front. Things like inflation, war-induced commodity shortages, and further monetary tightening don’t paint a pretty picture for the outlook of the U.S. economy.

While there are signs inflation is beginning to ease, it’s hard to ignore the 9.1% price increase recorded in last month’s Consumer Price Index (CPI) report, the fastest pace of growth in decades.

The housing market has been another point of concern. Since the start of the pandemic, real estate has been rising at an unsustainably high trajectory. However, in response to worsening monetary conditions, including 30-year fixed mortgage rates over 6%, housing demand is cooling fast. In some areas, home sales and asking prices have plummeted, even as the greater housing market has yet to subside.

Stocks have largely echoed the uncertainty of the economy. Growth and tech stocks are six months into one of their worst years in recent memory.

Nobel Laureate and New York Times columnist Paul Krugman has referred to the current state of the U.S. financial system as a “Humbug economy,” in that the numbers don’t quite add up. A recession is something like a puzzle. Currently, we only have half the pieces. Maybe a recession will offer insight into the bizarre state of the economy. Regardless, time will be the truth-teller, one way or the other.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.


Article printed from InvestorPlace Media, https://investorplace.com/2022/07/is-the-u-s-in-a-recession-2/.

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