Is US Economy In A Ression?

The American economy shrank an annualized 0.9% on quarter in Q2 2022, following a 1.6% drop in Q1 and technically entering a recession. According to the dictionary, the US went into a technical recession on Thursday, when it was confirmed that the economy had shrunk for two consecutive quarters. While a recession has traditionally been defined as two back-to-back quarters of declining gross domestic product (GDP), there has been some discussion about whether the current economy can be classified the same way due to some of the abnormal factors at play, including a robust labor market.


GDP contracted at an annual rate of 0.9% in the second quarter, but a slowdown in inventory accumulation removed a whopping 2 percentage points from the output. That means the economy would have grown if companies weren't culling their stockpiles. It also signals that consumer demand could be weakening, another sign of a recession.


In the United States, declaring a recession falls to a private, nonprofit research organization, the National Bureau of Economic Research. The group defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months,” and it bases its decisions on a variety of indicators usually only months after the fact.


The United States National Bureau of Economic Research (NBER), a nonprofit organization whose business cycle committee tracks peak and trough months of economic growth, instead defines a recession as a widespread contraction in the economy that lasts more than a few months, with each of the three criteria depth, diffusion, and duration being met to some degree.

NBER’s committee usually takes a while to determine the peaks and troughs of the US economy, but recent history shows search interest for “recession” lines up pretty well with recessionary periods. Keep your eyes peeled. An official announcement could be made in the coming months.

Stephen Mihm writes that their work for the National Bureau of Economic Research is rigorous, but it’s always been as much art as science. There’s no equivalent to the laws of thermodynamics when it comes to recessions — they’ve come to us in a dizzying array of shapes and sizes, and no two have had the same causes or effects. A look at the indicators now gives us a little insight into the complexity of the task at hand.

Robert Gordon, a Northwestern University economics professor and member of the NBER’s business cycle dating committee, said this might be a situation in which other indicators point to the recession but the job market doesn’t, or it lags behind atypically for several months.

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. There are now signs that consumers are getting into that defensive position. On Monday, Walmart ominously warned of lower profits for the second time in just two months.

10 out of the last 10 times the US economy shrank for two consecutive quarters, the US economy was declared to be in a recession, But massive job losses occurred during seven out of the past seven recessions, and that's not happening now. After raising interest rates again, Jerome Powell rejected speculation that the US economy is in recession, citing the “very strong labor market” as evidence.

Fed Bank of Atlanta President Raphael Bostic said the US economy was away from entering a recession and the central bank had further to go in raising interest rates to get inflation under control. He’s the first central banker to speak publicly since the Fed delivered its most aggressive back-to-back hikes since the early 1980s to tackle rampant inflation.


Treasury Secretary Janet Yellen indicated that the economy was only “in a period of transition” during a White House press briefing on July 24. “I would be amazed if they would declare this period to be a recession, even if it happens to have two-quarters of negative growth,” Yellen said, adding that the economy had rapidly grown 5.5% last year. “We have a very strong labor market. When you are creating almost 400,000 jobs a month, that is not a recession.”

Interesting observation by Jim Bianco. Fed chairman Powell said the US is not in a recession because the labor market is too strong. This was exactly the argument used by Arthur Burns 50 years ago. But as the orange boxes on the chart below show, all three of the 1970s recessions started with positive payroll growth.

An inverted yield curve is often seen as a signal that investors are more nervous about the immediate future than the longer term, leading interest rates on short-term bonds to move higher than those paid on long-term bonds.


Since 1929, the S&P 500 on average has hit its low point 9.4 months after recessions begin, and 4.3 months before recessions end. So if a recession has already begun, it will likely be over by November 2022, according to Martin Adams and Casper.


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