White House: Even if GDP contracted, it's not a recession
Next Thursday, the Commerce Department will release its initial estimate of second-quarter growth. President Biden's economic advisers are trying to lay down a marker now.
- They say that even if the number turns out to show a second straight quarter of negative growth, the U.S. economy was almost certainly not in a recession in the first half of this year.
Why it matters: By most measures, the world's largest economy remains comfortably in expansion mode — but the White House is seeking to preempt heightened recession chatter that would accompany two quarters of shrinking GDP.
- The colloquial definition is that two consecutive quarters of contraction equals a recession. It is often useful as a rule of thumb in international comparisons.
- But in the U.S., a committee of the National Bureau of Economic Research — the semi-official arbiters of business cycle dates — defines a recession as "a significant decline in economic activity that is spread across the economy and lasts more than a few months."
Driving the news: Analysts expect the GDP report to show a soft 0.9% growth rate. More worrying, a "nowcast" that models GDP growth from the Atlanta Fed suggests the Q2 number will print -1.6%.
- White House Council of Economic Advisers chair Cecilia Rouse and member Jared Bernstein, present their case in a new blog post that the economy is nowhere near recession as defined by the NBER committee's criteria.
- Their post notes that the data series most closely watched by the NBER all point to continued growth in the first half of the year: employment; inflation-adjusted personal income excluding government transfers; inflation-adjusted consumer spending; and industrial production.
- They add that a different recession rule of thumb created by economist Claudia Sahm, using the moving average of the unemployment rate, also does not point to a recession.
What they're saying: "The American people are digesting a lot of information about the economy, and we're trying to inform the ongoing discussion about the state of the business cycle with concrete information about how important calls, like a recession, are made," Rouse tells Axios.
- "That's especially critical right now as some of the key factors in play, such as consumer spending and job growth, have maintained real strength through the first half of this year."
The context: Private-sector economists generally agree with the Biden team's take, but they see elevated recession odds ahead.
- "We are doubtful that the economy is already in recession," said Goldman Sachs economist Ronnie Walker in a research note, but added that forward-looking indicators have softened in recent weeks and that the firm puts 30% odds on a recession in the next year.
What's next: Expect to hear many administration officials emphasize these ideas in the run-up to next week's GDP release as they seek to get ahead of some potentially nasty headlines, should the number come in soft.