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The US economy has contracted in the past three months by 0.9%.
This is the second consecutive quarter of negative economic growth in the US. In the first quarter, GDP, or gross domestic product, declined at an annual rate of 1.6%.
While two consecutive quarters of negative growth are often considered stagnation, it is not an official definition. A nonprofit, nonpartisan organization called the National Bureau of Economic Research determines when the U.S. economy is in a recession. The NBER panel of eight economists makes this determination and many factors factor into this calculation.
The White House refused to describe the current economy as a recession. No doubt she understands the role the economy will play in the midterm elections.
stagnation or not
Treasury Secretary Janet Yellen noted in her recent appearance on NBC’s Meet the Press that although two consecutive quarters of negative growth are generally considered a recession, conditions in the economy are unique.
“When you’re creating close to 400,000 jobs a month, it’s not a recession,” she said.
However, either way if you cut it, the economy has weakened.
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 through 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 stabilized at 3.6%which is close to its lowest level before the epidemic, and the economy added 372,000 jobs.
“I don’t think the NBER is going to look at the data 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.”
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