An aerial view of inactive shipping containers at the Port of Oakland on July 21, 2022 in Oakland, California. Trucks protesting the California Labor Act (AB5) have been shut down at the Port of Oakland after blocking access to container terminals at the port for the past four days. An estimated 70,000 independent truckers in California are affected by the state’s bill AB5, a contract economy law passed in 2019 that makes it difficult for companies to classify workers as independent contractors instead. for the staff. Port closures are contributing to ongoing supply chain problems.
Justin Sullivan | beautiful pictures
The second quarter GDP report brought the economy in line with the general definition of a recession. But we won’t know for sure if it’s officially announced for months at least.
That’s because the official arbiter in such matters is the National Bureau of Economic Research’s Business Cycle Dating Committee, and it do not use the same definition is the generally accepted level of at least two consecutive quarters of negative growth.
Rather than NBER defines recession is “a significant decline in economic activity that spreads across the economy and lasts more than a few months.”
That could mean consecutive quarters of declines. In fact, every time since 1948 that GDP has fallen for at least two consecutive quarters, the NBER has finally declared a recession. GDP in the second quarter fell by 0.9%while the first quarter fell 1.6%, according to the Bureau of Economic Analysis.
But the agency didn’t even use GDP as a key factor in its thinking, and it declared a recession in 2001 without a consecutive decline.
And get ready for a surprise again this time: Hardly any major Wall Street economists expect the NBER to say the US economy is already in recession in the first half of 2022.
“We didn’t have a recession in the first half of the year, but the odds are rising, we’ll hit it by the end of the year,” said Mark Zandi, chief economist at Moody’s Analytics.
Like his peers on the Street, Zandi said the bustling job market – even if 457,000 jobs added a month this year has yet to return to pre-Covid levels – is the main reason the NBER hasn’t declared. Depression. But there are others.
“We’re creating too many jobs. The number of employees laying off is record low, the number of unfilled positions is record high. Consumer spending, business investment are positive,” he said. “I just don’t see them declaring a recession.”
Federal Reserve Chairman Jerome Powell said Wednesday he doesn’t think the economy is in a real recession, and he even questioned the accuracy of GDP data.
“What we have right now doesn’t look like a recession,” Powell said. “And the real reason is that the labor market only sends such a signal of economic strength that it makes you really question the GDP data.”
NBER Criteria
While NBER is hardly a household name, government and business news outlets treat the organization’s claims as gospel when defining expansion and contraction.
Organizations are generally said to employ six elements:
- Actual personal income minus transfer payments
- Non-Farm Payrolls
- Employment is assessed by the Bureau of Labor Statistics household survey
- Real personal spending
- Sales adjusted for price fluctuations
- Industrial production
“If this definition feels relevant, it’s because it is,” said Tim Quinlan, senior economist at Wells Fargo, in a client note earlier this week. “Defining a recession is not easy, and it’s not simply how long a recession lasts to how far and wide it is throughout the economy.”
Following Thursday’s GDP release, Quinlan said conditions are rapidly approaching even NBER’s criteria.
Emphasizing the exact definition of a recession will be a more difficult task, he writes, as the apparent slowdown in economic activity is reflected in today’s 0.9% contraction in real GDP. of the second quarter”. “However, real consumer spending continues to grow and the job market is still alive. It’s too early to call the end of this expansion, but it’s fast approaching.”
Political branching
The question of recession has become a political issue.
Earlier this month, the White House outlined a number of hacks upon release a blog post affirm that the economy is not in recession. Critics accuse the administration of trying to change an age-old definition and the media are following it by taking into account the NBER factor.
The post notes that “overall data” such as “labor market, consumer and business spending, industrial production and income” becomes the true definition of a recession.
“Based on these data, it is less likely that the decline in GDP in the first quarter of this year – even if followed by another decline in GDP in the second quarter – indicates a recession,” the article said. stated newspaper.
“Policymakers will inevitably tie themselves in knots when trying to explain why the US economy is not in recession,” said Seema Shah, chief global strategist at Chief Global Investors. “While two consecutive quarters of negative growth are technically a recession, other economic data over time are inconsistent with a recession.”
Even if the NBER doesn’t declare a recession in the first half of the year, the economy is still far from coming out of the woods. Higher interest ratesPersistent inflation and historic sourness for consumers and businesses pose great dangers ahead.
Many economists who also suspect a recession in the first half of the year say a recession is very likely next year or so.
“People are very negative. It’s as dark as I’ve seen it,” said Zandi, an economist at Moody’s. “I’ve never seen anything like it just in anticipation of this bad economy dying ahead. At the end of the day, a recession is a loss of confidence. Consumers lose faith that they’ll have jobs, businesses lose confidence that they’ll be able to sell what they produce. The risks are so high, we lose confidence and go into recession.”
