‘Big Short’ investor Michael Berry criticizes WH for calling recession ‘unlikely’

Big Short investor Michael Perry criticized the Biden administration on Monday after officials claimed that a recession in the United States is “unlikely” even if the economy contracts for the second consecutive quarter.

Perry accused the White House of trying to control the damage ahead of the closely watched release of its second-quarter GDP report later this week.

While a decline in GDP in two consecutive quarters is widely seen as a sign of recession, the White House retracted that definition in a recent blog post that irked the hedge fund chief.

“The White House would like you to redefine a recession as a recession in which consumers do not borrow with credit cards to pay for inflation and the workforce is insufficient for the size of the economy,” Perry wrote. “GDP is out Thursday, doesn’t mean there’s anything wrong with that.”

Another weak GDP reading will fuel growing pessimism about the state of the US economy during a period of decades-high inflation and monetary tightening at the Federal Reserve. The economy shrank 1.6% in the first quarter — its first decline since the early days of the COVID-19 pandemic.

But in a blog last week, the White House argued that the notion of two consecutive quarters of lower GDP suggests that a recession “is neither the official definition nor the way economists evaluate the state of the business cycle.”

The White House said it was “unlikely” that the US economy would be in a recession.
Getty Images

“Instead, both official decisions about recession and economists’ assessment of economic activity are based on a comprehensive view of data – including the labor market, consumer and business spending, industrial production and income,” a blog post said.

“Based on this data, the drop in GDP in the first quarter of this year – even if followed by another drop in GDP in the second quarter – is unlikely to signal a recession,” the publication added.

grocery store
GDP for the second quarter will be released later this week.
AFP via Getty Images

The White House added that the US labor market remains “one of the strongest” ever and that real spending and household savings remain strong.

Treasury Secretary Janet Yellen also played down the risks of a recession this week while citing the strength of the labor market as a sign of the health of the economy.

Perry, president of Scion Capital Management, has expressed pessimistic views of the economy in recent months.

grocery shopper
Inflation was 9.1% in June.
Getty Images

Earlier this month, he warned of a higher-than-normal “floor” for long-term inflation due to ongoing supply chain issues, geopolitical tensions and a shortage of manual labor.

Berry also predicted a “split labor market” in which white-collar workers would be laid off while blue-collar workers would remain “in short supply”. A labor shortage was one of the main contributors to inflation, which hit 9.1% in June.

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