President Joe Biden’s administration is downplaying data due this week that could show the US economy contracted for a second straight quarter -- a development that would match one standard definition of a recession.
The administration’s message: a “technical recession” isn’t necessarily a real one. At stake is winning a political-messaging battle with Republicans over how effective Biden’s policies have been in spurring a post-pandemic recovery.
Biden’s aides, including Treasury Secretary Janet Yellen, have fanned out in recent days in preparation for Thursday’s quarterly gross domestic product data, explaining that the formal definition of a recession is complex and runs deeper than simply two quarters of negative growth.
They’re arguing that the current picture is complicated, with global supply shocks and fluctuating commodity prices offset by a robust labor market. The US added more than a million jobs in the second quarter, National Economic Council Director Brian Deese highlighted Monday. There’s never been a US recession where the economy didn’t lose jobs, he also said.
“We face an economy with very significant global challenges,” Deese said in an interview. “Our focus is on what we can do on policy to try to address those challenges -- and how to then try to increase the prospects that we can move through the process, this period of uncertainty, to a period of more stable, steady growth.”
The median forecast for second-quarter GDP is for a 0.4% annualized gain, following a 1.6% contraction in the first three months of the year. But 20 of the 63 economists surveyed by Bloomberg currently expect a drop -- helping fuel the recession debate.
Biden’s team is drawing a distinction, including in a blog post, between what’s officially regarded as a recession and what’s generally referred to as a “technical recession.”
The colloquial definition is a sort of short-hand: two consecutive quarters of negative growth. But the formal definition in the US context comes from the National Bureau of Economic Research, which defines a recession as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” A dedicated NBER panel bases the determination on criteria including the depth, diffusion and duration.
Deese even took issue with the characterization of two quarters of GDP declines as a “technical” recession -- terminology that’s used widely by economists and investors alike.
“The technical definition is not two negative quarters,” Deese said. “Technically, the definition is the NBER’s definition.”
Yellen said Sunday that she’d be amazed if the NBER calls this a recession, given the state of the labor market. “When you’re creating almost 400,000 jobs a month, that is not a recession,” she said Sunday on NBC’s “Meet The Press.”
Fed Action
The first-quarter drop in GDP was largely due to a widening trade deficit that was spurred by a wave of imports, and consumer spending continued alongside job growth in that period.
If a “technical recession” doesn’t immediately mean a formal one, the data could still soon turn sour. The Federal Reserve is poised to once again hike rates by an historically large 75 basis points this week, putting fresh pressure on growth in a bid to stem price increases.
“You don’t see any of the signs now. A recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that,” Yellen said Sunday. “But inflation is way too high. And, you know, the Fed is charged with putting in place policies that will bring inflation down. And I expect them to be successful.”
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