The turbulent economy has spawned a great deal of debate about whether the U.S. is in a recession, but it turns out it's not so easy to define. Here's what to know, from Louis Jacobson at PolitiFact.
Treasury Secretary Janet Yellen noted recently on NBC's "Meet the Press" that a common definition is two consecutive quarters of falling gross domestic product. On Thursday, the Bureau of Economic Analysis reported that the GDP fell 0.9% in the second quarter of 2022, marking the second consecutive quarter of falling GDP. Yellen said, "What a recession really means is a broad-based contraction in the economy. And even if that number is negative, we are not in a recession now."
Jacobson writes, "Yellen is correct that the official definition economists use is significantly broader than the two-consecutive-quarters shorthand. At the same time, arguing over the technical definition of whether the U.S. is in a recession is a distraction, economists say. In today’s economy, so many indicators are off-kilter because of the pandemic that old rules like the two-quarters rule may no longer apply. Still, there are plenty of reasons to be concerned about the economy even without calling it a recession right now."
The two-quarter rule is widely known because it's simple and easy for the public to understand, according to Creighton University economist Ernie Goss, who compiles the Rural Mainstreet Index. "But officially, the only recession arbiter is the National Bureau of Economic Research’s Business Cycle Dating Committee. The committee has been marking the start and end points of recessions since the late 1970s," Jacobson reports. "The committee deliberates privately, but it is open about what factors it uses to determine the start of a recession, namely 'a significant decline in economic activity that is spread across the economy and that lasts more than a few months.' Every recession requires 'depth, diffusion, and duration" of economic hurt.'"
On its website, the committee notes that it has sometimes called a recession even without the two-quarters rule. That includes the 2020 pandemic recession, which lasted only two months. "The committee says it weighs a variety of factors, including inflation-adjusted personal income, nonfarm payrolls, household employment data, inflation-adjusted personal expenditures, inflation-adjusted manufacturing and trade sales, and industrial production," Jacobson reports. "The biggest shortcoming of NBER’s system is that it isn’t done in real time. The fastest determinations have occurred about four months after a recession’s start; the slowest have come 21 months later."
Most of the two dozen economists PolitiFact contacted for the story warned against relying too heavily on the two-quarter rule. The data is only preliminary and gets revised later as more data comes in, they noted, which can change economic figures dramatically. That may be what's happened with the most recent GDP figures, they said. Though the GDP fell by 1.6% in the first quarter of 2022, economists said the numbers may be off-base because of issues with inventories and trade data, Jacobson reports.
Considering GDP alone overlooks other important economic data points. The unemployment rate remains historically low at 3.6%, nonfarm payroll employment continues to rise robustly, and most of the recent payroll growth has been in full-time as opposed to part-time jobs, said Brookings Institution economist Gary Burtless," Jacobson reports. "Consumer spending also continues to chug along, despite high inflation."
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