Gross domestic product is the most commonly accepted measure of the economy’s performance. For the previous two quarters, it showed that the economy contracted. So recession, right? Wrong.
Before I get into why I don’t think the economy has been in a recession for the first half of the year, it’s worth mentioning that things are so weird right now. Contradictions abound. All the confusion results from turning the economy off and on again. 2020 threw a wrench in everything. All.
People are upset because they think they are being lied to. “They’re moving the goal post.” I get it. Inflation sucks and people are hurt and distrustful, and “this is just another episode of political bullshit.”
Ben and I talked about the definition of a recession on our podcast, and we sided with The White House in this case. Someone commented: “Serious question. Why is it not controversial? It seems crazy to me.
The National Bureau of Economic Research is the official arbiter of where we are in the business cycle. They do not define a recession as “two consecutive quarters of negative GDP growth,” which is widely accepted as a general rule. here is your opinion:
“The traditional NBER definition of a recession is that it is a significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.”
Back in 1987, when the great Jason Zweig first became a financial reporter, he asked this question:
“The financial press often sets the definition of a recession as two consecutive quarters of falling real GDP. How does that relate to the NBER recession dates?
For the full answer, Click herebut there is one bit I wanted to isolate:
“We don’t identify economic activity solely with real GDP, but we look at a variety of indicators.”
Let’s talk about those indicators. The Federal Reserve Bank of Dallas published an article yesterday, “The US probably did not enter a recession in early 2022 despite negative GDP growth.”
They presented some compelling evidence that we were not in a recession. They show nonfarm payroll employment and industrial production in the first half of the year compared to previous recessions.
“The gray lines in chart 1 show the movements of nonfarm payrolls and industrial production in each previous business cycle relative to the peak of that cycle (month 0 = 100); the average of all previous cycles is the black line… The red line is the movement of the indicator between June 2021 and June 2022 relative to the December 2021 level.”
They go one step further and compile a composite index of recession indicators to get a broad view of the economy.
Does this sound like a recession to you?
Fine and what? We may not be in a recession, but there is certainly a lot of pain out there. And a lot of pessimism. Yes everyone feels like we’re in a recession, why does it matter what the data says? First of all, not everyone feels that we are in a recession. People on the internet might have convinced you of that, but Twitter is not the real world. Durable Goods Orders do not hit record highs in a recession. travel companies do not beat estimates and increase targeting during recessions. And the world’s largest company have your best june quarter during a recession.
I’m not pointing fingers, I myself have been more pessimistic than I normally am about the economy. He was proven wrong.
There is still the possibility that the economy will contract. Inflation may have taken longer to hit the consumer because of the influx of cash he received during the pandemic and his desire to spend after the lockdown. Maybe the fed takes it too far. Perhaps the sense that a recession is looming causes businesses to back off to the point where getting a job becomes more difficult.
Perhaps one or more of these things will happen during the second half of the year. But I don’t know how you can look at the data and say what happened during the first half.