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On Thursday, we will get an important report card on the US economy.
Gross Domestic Product, or Gross Domestic Product, tells us how much the economy grew or contracted in the previous quarter.
In the first three months of the year, GDP declined at an annual rate of 1.6%. This downturn stunned economists and investors alike.
Now, there are fears that the economy will contract for the second consecutive quarter.
“The common definition of a recession is two negative quarters of GDP growth,” Treasury Secretary Janet Yellen noted in an appearance on NBC’s “Meet the Press.” “When we saw that, there was usually stagnation.”
But Yellen notes that things are now different in the US economy. “When you’re creating close to 400,000 jobs a month, it’s not a recession,” she said.
What exactly is an American recession?
While two consecutive quarters of negative growth are often considered stagnation, it is not the textbook definition.
The official arbiter of a recession in the United States is a nonprofit, nonpartisan organization called the National Bureau of Economic Research. The NBER panel of eight economists makes this determination, and many factors factor into this calculation.
As the Federal Reserve continues to aggressively raise interest rates to fight high inflation, fears of a recession have grown.
But the current economic data has been quite mixed. In the run-up to previous recessions, for example, the economy was giving up jobs. But the US economy has been adding jobs month after month, Yellen noted.
“This is not an economy in a recession,” Yellen said. “Recession is a widespread weakness in the economy. We are not seeing that now.”
Yellen also noted consumer spending, which remained strong, and highlighted positive data on the credit quality of Americans.
The White House doesn’t like the word depression
The White House has taken pains to remind people that just two quarters of negative growth doesn’t automatically mean the economy is in a recession.
With the midterm elections looming, the White House is well aware of the optics of a country in doldrums, as Americans struggle financially. But with the cost of many things rising and inflation rising to its highest levels in several decades, many Americans are already dealing with it.
65% majorityAnd the of registered voters who responded A recent survey by Morning Consult / Politico They said they thought we were already in one.
What are the signs of stagnation?
NBER . says The “traditional definition” of a recession is “a significant decline in economic activity that spreads throughout the economy and lasts more than a few months.”
Employment is part of the group’s accounts, and the job market continues to show signs of strength. In June, the unemployment rate held steady at 3.6%, close to its lowest level before the pandemic, and the economy added 372,000 jobs.
“I don’t think the NBER is going to look at the data right now and say the economy is in a recession,” says Michael Gaben, chief US economist at Bank of America Securities.
But it’s unclear how much Americans will care about whether the current economy meets a certain high-tech definition.
Parts of the economy are already slowing down
What is clear to everyone is that the economy is slowing, prices are rising at their fastest pace in decades, and the housing market is starting to slow as the Federal Reserve aggressively raises interest rates. On Thursday, the central bank raised interest rates by an additional three-quarters of a percentage point.
Economists acknowledge Thursday’s headline figure – how much the economy has grown or contracted on a percentage basis – is likely to attract the most attention, but they say it’s important to dig into the fundamental data.
“It’s the pieces of the puzzle that matter when you look at GDP,” says Michelle Meyer, chief US economist at the Mastercard Institute of Economics.
Among other things, we will see if household spending, which accounts for 70% of all economic activities, keeps pace with inflation.
But as Federal Reserve Chair Jerome Powell and other policymakers have acknowledged, in a moment like this, when there is a lot of uncertainty, and when many Americans are in economic pain, sentiment and expectations matter, and the key to the economy is not losing too. Many job opportunities.
“I think a lot of that has to do with jobs,” Mayer says. “Whether you have a job. Whether you expect to keep your job. And what that might mean for your future income path.”