Jul 24, 2022 - Economy

Janet Yellen says "economy is slowing down" but not in a recession

Treasury Secretary Janet Yellen acknowledged that the U.S. economy is slowing down during an appearance on NBC's "Meet the Press" on Sunday. But she pushed back against the idea the U.S. has entered a recession, noting that many of the traditional recession signs are not apparent.

Why it matters: Decades-high inflation has spurred fears of an economic downturn, but consumer spending and job creation are still robust.

  • This has contributed to a gulf between what official data reflects and the perception of everyday consumers — relatively flush with cash but ravaged by white-hot prices eating into spending power, Axios' Javier E. David writes.

What they're saying: Yellen told host Chuck Todd that while the "economy is slowing down," the labor market remains "extremely strong."

  • "Even just during the last three months, net job gains averaged 375,000. This is not an economy that's in recession. But we're in a period of transition in which growth is slowing," Yellen said.
  • "A recession is a broad-based contraction that affects many sectors of the economy. We just don't have that."
  • "Consumer spending remains solid. It's continuing to grow. Output, industrial output, has grown in five of the six most recent months. Credit quality remains very strong. Household balance sheets are generally in good shape. But inflation is way too high."

Yellen acknowledged that there are "threats on the horizon," citing high inflation and slowing growth in other countries, as well as the potential for higher oil prices amid Russia's war in Ukraine.

  • "I'm not saying that we will definitely avoid a recession, but I think there is a path that keeps the labor market strong and brings inflation down," she said.

The big picture: On Thursday, the Commerce Department will release its initial estimate of second-quarter growth. President Biden's economic advisers have said that a negative figure wouldn't indicate the U.S. was in a recession in the first half of this year, Axios' Neil Irwin writes.

Be smart: The colloquial definition of a recession is two consecutive quarters of GDP contraction.

  • "Many economists expect second-quarter GDP to be negative. First-quarter GDP was negative. So we could see that happen," Yellen told "Meet the Press."
  • "But I do want to emphasize: What a recession really means is a broad-based contraction in the economy. And even if that number is negative, we are not in a recession now," Yellen added.
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