The US is not yet in recession?!

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The US economy shrank at an annualized pace of 0.9% in the second quarter, according to government data released yesterday. Paired with the 1.6% drop in Q1, the economy has now contracted for two straight quarters.

That means we’re in a recession, right? Two straight quarters of declining GDP has been frequently used as a rule of thumb to describe a recessionary economy. The economy is supposed to grow, after all, and when it spends half of the year shrinking…it’s likely a sign of a prolonged slump.

But the folks who actually make the official decision on recessions, the National Bureau of Economic Research (NBER), do not use the two-quarter rule as the definition. Instead, they follow a more “if it looks like a recession, swims like a recession, and quacks like a recession, then it probably is a recession” approach.

For its official definition, the NBER considers a recession a “significant decline” in economic activity. Not only that—the decline has gotta be deep, it’s gotta be broad, and it’s gotta last for more than a few months.

When deciding whether the economy is in a recession, the NBER looks to a variety of indicators (not just GDP) to understand the health of the economy, such as job growth, consumer spending, and industrial production. It’s not a simple or transparent formula, for better or worse.

Right now, those indicators are flashing mixed signals

Inflation, and the Fed’s rate hikes to tame it, have basically halted all forward economic momentum. Personal consumption, which accounts for the majority of the economy, grew at a measly 1% pace in Q2, the GDP report showed yesterday. And the once-booming housing market has entered a downturn.

On the other hand, the jobs picture remains strong, with unemployment holding at a low 3.6% rate for the past four months. On Wednesday, Fed Chair Jerome Powell cited the fact that the economy added 2.7 million jobs in the first half of the year to explain why he wouldn’t consider the US economy to be in a recession. “There are too many areas of the economy that are performing too well” for that to be the case, he said.

I’m confused. Americans facing soaring prices for food, fuel, and housing probably don’t need an elite group of economists to tell them that the vibes are bad right now. Whether we’re technically in a recession or not, Americans say that the economy is their overwhelming concern this summer.


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