The US Economy Declines Again—But It’s Not a Recession Until These 8 People Say So

The economy has shrunk for two consecutive quarters. But whether we are in a recession is up to a small group of economists at the National Bureau of Economic Research.

Are we in a recession, or not? Getty Images

The U.S. economy has shrunk for a second quarter in a row, meeting the common definition of a recession. But neither President Joe Biden nor the National Bureau of Economic Research (NBER), the official arbiter of economic states in the U.S., has declared a recession.

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Data released by the Commerce Department on July 28 show that the U.S.’s gross domestic product (GDP), a broad measure of economic activity, declined by 0.9 percent in the second quarter from a year ago, marking the second consecutive quarter of economic contraction. In the previous quarter, GDP fell by 1.6 percent, a number that surprised many market observers.

The NBER defines recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” GDP isn’t the sole barometer the bureau looks at; it also considers factors including employment, retail sales, and household income.

The ultimate verdict will be up to eight economists on the NBER’s Business Cycle Dating Committee, appointed by the bureau’s president James Poterba. (Poterba is one of the eight members on the committee.) The NBER is a private nonprofit organization, and it’s unclear when its Business Cycle Dating Committee will meet to deliberate on the matter.

“They often do not call a recession until two years after it started,” said Laura Veldkamp, a finance professor at Columbia University and a research fellow for the NBER. “Their goal is not to be fast, but to be sure they are right.”

The NBER has declared 12 recessions since 1949. In most of those cases, GDP did decline for two or more consecutive quarters. But past recessions were also marked by mass job losses, which is not the case currently. The unemployment rate has remained at historic low levels (below 4 percent) since February. Although surging inflation and interest rates prompt many business leaders to downsize and cut back spending, there’s no sign yet it’s going to move jobs data on the macro level.

In a statement on second-quarter GDP data on July 28, President Biden omitted the word “recession” throughout and highlighted economic recovery from the pandemic low.

“Our job market remains historically strong, with unemployment at 3.6% and more than 1 million jobs created in the second quarter alone. Consumer spending is continuing to grow,” the statement read. “Earlier this week, I met with the Chairman of SK Group from Korea, just one of the companies investing more than $200 billion in American manufacturing since I took office, powering a historic recovery in American manufacturing.”

This year, the Federal Reserve has raised its benchmark interest rate by a cumulative 2.25 percentage points in an attempt to curb high inflation but with little effect so far. This week, the Fed increased interest rates by 0.75 percent points and indicated more hikes were likely needed to combat inflation.

“My economic plan is focused on bringing inflation down, without giving up all the economic gains we have made,” President Biden said in yesterday’s statement.

The US Economy Declines Again—But It’s Not a Recession Until These 8 People Say So