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On Thursday, we will receive an important report on the US economy.
GDP, or gross domestic product, tells us how much the economy grew or contracted last quarter.
During the first three months of the year, GDP fell at an annual rate of 1.6%. That contraction startled economists as well as investors.
Now, there are fears that the economy shrank for the second straight quarter.
“A common definition of a recession is two-quarters of negative GDP growth,” noted Treasury Secretary Janet Yellen during an appearance on NBC’s Meet the Press. “When we see that, there’s usually already a recession.”
But Yellen notes that things are different now in the US economy. “When you’re creating almost 400,000 jobs a month, it’s not a recession,” she said.
What exactly is a US recession?
While two consecutive quarters of negative growth is often referred to as a recession, that is not the textbook definition.
The official arbiter of a U.S. recession is a nonprofit, nonpartisan organization called the National Bureau of Economic Research. A committee of NBERs consisting of eight economists made that decision, and many factors went into that calculation.
As the Federal Reserve continues to raise interest rates aggressively to combat high inflation, fears of a recession have grown.
However, the current economic data is quite mixed. For example, in the period before previous recessions, the economy dropped jobs. But the US economy added jobs every month, as Yellen noted.
“This is not an economy in recession” Yellen said. “Recession is the broad-based weakness of the economy. We don’t see that now.”
Yellen also pointed to consumer spending, which remains strong, and she highlighted positive data on Americans’ credit quality.
The White House doesn’t like the word recession
The White House has tried to remind people that just two-quarters of negative growth doesn’t mean the economy is in recession.
As the midterm elections unfold, the White House is acutely aware of the vision of a country in decline, where Americans are struggling financially. But with the cost of so many things skyrocketing and inflation at a multi-decade high, many Americans take the issue too seriously.
Majority, or 65%, of registered voters who responded a recent poll by Morning Consult / Politico said they believed we were in one.
What are the signs of a recession?
NBER said The “traditional definition” of a recession is “a significant decline in economic activity across the economy and lasting more than a few months.”
Employment is part of the group’s calculus, and the labor market continues to show strong signs. In June, unemployment rate held steady at 3.6%near pre-pandemic lows, and the economy added 372,000 jobs.
“I don’t think the NBER is going to look at the data right now and say the economy is in a recession,” said Michael Gapen, chief US economist at Bank of America Securities.
But it’s not clear to what extent Americans will care about whether the current economy meets a specific, highly technical definition.
Parts of the economy are slowing down
What’s clear to everyone is that the economy is slowing, prices are rising at their fastest pace in decades, and the housing market is starting to cool as the Fed raises interest rates aggressively. On Thursday, the central bank raised interest rates by three-quarters of a percentage point.
Economists conceded Thursday’s headline number – how much the economy grows or shrinks on a percentage basis – is likely to attract the most attention, but they say it’s important to be Dig deep into the underlying data.
“Those are the key pieces when you look at GDP,” said Michelle Meyer, chief US economist at the Mastercard Institute of Economics.
Among other things, we will see if household spending, which accounts for 70% of total economic activity, can keep up with inflation.
But as Fed Chairman Jerome Powell and other policymakers have acknowledged, at a time like this, when there is so much uncertainty, and when so many Americans are experiencing economic, psychological and An important and key hope for the economy is not to lose too many jobs.
“I think a lot of it depends on the job,” says Meyer. “Whether you have a job or not. Do you expect to keep your job or not. And what that could mean for your future income path.”
