- The White House recently explained why two quarters of negative growth do not always indicate a recession.
- However, a growing number of voices accused the administration of changing the definition of economic downturn.
- The economy is currently adding too many jobs to be officially in a recession.
There is a lot of talk about stagnation right now, but Americans can’t even agree on the main part of the debate: What exactly is a stagnation?
This week will be a busy week for US economists. The preliminary reading of economic growth for the second quarter, which may be the most anticipated data for this week, is due to be published on July 28. The outlook is bleak. Consensus forecasts are for GDP growth of just 0.5% annualized, and the Atlanta Fed expects the economy to actually contract 1.6%.
In the event that the worst-case forecast is correct, the US economy will have contracted during the entire first half of 2022.
This put many Americans on edge. The basic definition of a recession has long been back-to-back negative growth quarters, which means Thursday’s report could match many observers’ criteria for deflation. Americans are already very pessimistic about the economy. If the upcoming GDP reading appears negative, warnings of a catastrophic recession will only rise.
Whether they are actually right is another question entirely, and the answer is a resounding “no.” The National Bureau of Economic Research is the semi-official arbiter about when economic downturns begin and end in the United States, and its criteria are far more complex than the two-quarter rule. The organization is looking for a “significant decline in economic activity that spreads through the economy and lasts more than a few months” before calling for a recession.
In other words, it takes more than two quarters of negative GDP for the US to be in a recession. This did not prevent the issue from becoming a political battleground. The White House took the first shot on July 21, publishing a blog by its Council of Economic Advisers that outlined several reasons why the country should not enter a recession. Chief among them was the NBER definition, but council members also cited strong job creation and industrial production as signs that the economy was swaying.
The post aimed to clarify the official criteria for a recession, but it sparked accusations that the White House was adjusting the definition to soften the blow of potentially bad GDP prints. When asked Friday if the Biden administration is trying to change the definition, press secretary Karen Jean-Pierre said labor market strength and other indicators “are not generally what we see when we talk about a recession or even a pre-recession.”
Biden addressed the debate on Monday, predicting that the US would avoid deflation, and also highlighted the labor market’s recovery as a sign of good economic health.
“We are not going to be in a recession, in my view [un]He said the employment rate is still one of the lowest levels in history. I hope we can move from this rapid growth to steady growth.
Meanwhile, Republicans are using this confusion to attack Democrats. Senate Minority Leader Mitch McConnell took to the Senate floor Monday to criticize the White House blog post, calling it a “frantic effort to redefine the word recession.”
However, the Council of Economic Advisers did not redefine “recession” so much as it repeated the definition used by the same body that chronicles business cycles. The problem for Democrats is that Americans have a wide range of criteria to fall back on, and the party has little time to explain the true definition before voters make their decision.
The economy has its fair share of weaknesses. Inflation continues to rise to its highest levels in four decades, the Federal Reserve is rapidly raising borrowing costs, housing for millions is inaccessible, and the wealth gap remains historically wide.
But the United States is far from stagnating. The economy is adding a lot of jobs and Americans are spending so much of their money that the country is currently in a recession. The future of the economy remains uncertain, and the jury is still out on whether a recession will materialize in 2023.
For now, the recovery is pushing forward, albeit at a slower pace than before.