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The question “Is the United States in a recession?” may seem like the sort of thing that has a simple, measurable answer. But a recently released slate of less-than-rosy economic data has sparked debate in Washington and on Wall Street over whether or not the U.S. is, in fact, in a recession and what the answer might mean for the country going forward.
A commonly used definition of a recession is any period in which the economy shrinks for two economic quarters in a row. The U.S. reached that benchmark last month when the Commerce Department released data showing that Gross Domestic Product contracted by 0.9% in the second quarter of this year after dropping by 1.6% to start the year.
The “two quarters” rule isn’t official, though, and is considered by many economists to be more of a good rule of thumb than a definitive measure of the state of the economy. Official designations of recessions can only come from a group of economists at an organization called the National Bureau of Economic Research, which uses much more complex data to determine whether there is “a significant decline in economic activity that is spread across the economy.”
A broad view of the economy provides plenty of fodder for both sides of the argument. Inflation has driven up costs at a rate not seen in decades, causing workers to lose ground even though their wages are also going up. The Federal Reserve has raised interest rates multiple times to slow the economy down and help tame inflation, and likely will again soon. Stocks are down from where they were at the start of the year, but are still well above where they were before the pandemic.
At the same time, the unemployment rate is still near historic lows and hundreds of thousands of new jobs are being added to the economy each month. A handful of other key economic indicators, particularly consumer spending, are still very strong.
Why there’s debate
The Biden administration has pushed back on the idea that the country is in a recession, arguing that — though the rapid growth seen last year may be cooling — the economy is not experiencing the widespread job losses and spending reduction that typically signify a sharp downturn. “That doesn’t sound like a recession to me,” President Biden said in an address late last month. Many economists agree with the White House’s view. They make the case that the situation is far too complicated — with varying metrics providing starkly different views of the health of the economy — for a measure as simple as the two-quarter rule to apply.
Many conservatives, on the other hand, have accused the Biden administration of trying to redefine away from that commonly-accepted meaning because acknowledging the economic reality would be a major political setback. They argue that, whatever vocabulary the White House chooses to use, Americans won’t be convinced because they’re living through tough economic times every day.
Others say the back and forth about whether to use the “R-word” is basically pointless, and may even be harmful. They say the economy is in such an unprecedented place, coming out of a disruption unlike any the country has ever experienced, that it’s largely pointless trying to draw corollaries to previous economic cycles. What matters, they argue, is that people are struggling and they need policymakers to use a variety of tools to bring things back to a state of stability.
There’s no formal timeline for when the NBER might issue an official judgment on whether this is indeed a recession. The process can often take several months and sometimes isn’t completed until the economic cycle in question has already ended.
Too many sectors of the economy are booming for this to be a recession
“Typically a real recession results in rapidly rising unemployment, falling incomes and a drop in spending. None of those things are happening right now.” — Jeffry Bartash, MarketWatch
A modest recession would actually be a good thing
“The U.S. economy appears to be slowing, not crashing. This slowdown was entirely foreseeable — indeed, deliberate. The sharp recovery from the steep, pandemic-induced downturn was bound to ease. More important, slower growth is the intended result of the Federal Reserve’s moves to raise interest rates and thereby tame inflation.” — Editorial, Washington Post
The debate is mostly about politics, not economics
“The r word, in today’s context, has a lot of political potency. But it doesn’t tell you much about how the economy is doing.” — Timothy Noah, New Republic
Denying the economic reality only means more delay in fixing it
“The president’s economic team should think twice before discounting the risk of a recession. After all, they stumbled into the current inflationary crisis after a year of trying to manipulate the language: Inflation was ‘transitory’ and therefore of little concern until it eventually topped an annualized 9%. Let’s not stumble into a recession because the White House has political priorities that conflict with economic reality.” — Phillip W. Magness, Wall Street Journal
No amount of political spin can convince voters that the economy is in good shape
“The reason it will be so difficult for Biden to explain that this isn’t really a recession is because in the American public’s mind, a recession is a de facto synonym for ‘economic bad times.’ … Americans are feeling an intense financial squeeze because everything is more expensive now.” — Jim Geraghty, National Review
Even if this isn’t technically a recession, leaders should start acting like it is one
“How about everyone at least agree that what we’ve got on our hands is either a genuine recession, or something sufficiently like one as to be indistinguishable from the real McCoy? Because by the time the record-keepers make their call, the recession will likely have been long in the books.” — Editorial, MassLive
Too much talk of a recession could ultimately cause one
“If people fear that the economy is about to go downhill, they’ll reduce spending, trade down to cheaper brands, postpone consumption and generally be more economical. If enough people do that, you get a recession.” — Lara Williams, Bloomberg
Labels don’t matter at all
“‘Is this a recession? feels like the question of the day. But I’m telling you it’s the wrong question. It represents an anxiety over terminology rather than over reality. The reality of this economy is that high inflation is making people feel poorer, and rising interest rates are discouraging some investment, and it’s all happening in the context of incredibly low unemployment. … It’s the numbers that matter, not the nomenclature.” — Derek Thompson, Atlantic
Old ways of looking at the economy are useless in such an unprecedented situation
“Regardless of how one labels the current economy, it is not part of anything close to a normal business cycle. And forecasters should drop any pretense that they know when things will get back to normal because all such forecasts depend on wildly abnormal data. In other words, forecasting economic outcomes–something that was already, to say the very least, hit or miss–is virtually impossible right now because the data is so anomalous.” — Norbert Michel, Forbes
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