Jul 26, 2022 - Politics & Policy

Biden's recession juggling act

Illustration of two hands juggling large golden coins
Illustration: Annelise Capossela/Axios

President Biden has a new headache: He can't avoid the debate over whether the U.S. is in a recession, but if he dwells on it, he may hasten the very slowdown he's desperate to avoid.

Why it matters: In economics, psychology matters. If the country and consumers believe we're in a recession — even if we technically aren't — the economy will eventually slow down, turning Biden's inflation problem into a potential stagflation nightmare.

  • Presidents can't talk their way out of an economic downturn, but they do have a unique ability to set the general tone of the country. Biden, like his predecessors, likes to accentuate positive economic data.
  • But with a 9.1% inflation rate and potentially two quarters of negative GDP growth, Biden can’t push the glass-half-full argument too far. His initial sanguine call on inflation — insisting it would be short-term — has already eroded some of his credibility.

Driving the news: On Thursday, the Commerce Department will release the initial GDP numbers for the second quarter of 2022, with economists expecting a 0.5% increase. Still, there are plenty of worrying signs: the Atlanta Fed’s "nowcast" model suggests GDP growth will come in at -1.6%.

  • Biden officials have been pre-butting the numbers and challenging the yeoman's definition that a recession is two consecutive quarters of negative economic growth, as Axios' Neil Irwin reported last week.
  • "Certainly in terms of the technical definition, it is not a recession," Brian Deese, the director of the National Economic Council, said on CNN on Monday morning.

What they're saying: Biden on Monday again downplayed the recession risk.

  • "My hope is we go from this rapid growth to steady growth and so we'll see some coming down," he said.
  • "But I don't think, God willing, we're going to see a recession," he said. "I'll be surprised."
  • Biden has a "strong antenna of what American families are going through," an administration official said today. "He really did grow up in a family where if the price of gas went up a nickel, it was a kitchen table discussion."

Between the lines: The risk in speaking too optimistically about the economy is a lack of credibility with voters — and markets.

  • “As president, you are always trying to be optimistic about the economy today and tomorrow," said Gary Cohn, who ran the National Economic Council under former President Trump and is now vice chairman of IBM.
  • "But you risk looking out of touch with voters that are suffering today and who are very concerned about the economic reality of tomorrow."

Flashback: After the 9/11 attacks, then-President George W. Bush tried to bolster the airline industry and the broader economy by encouraging Americans to head to Disney World.

  • "Take your families and enjoy life the way we want it to be enjoyed," he said.

The big picture: By custom, the National Bureau of Economic Research officially determines whether the U.S. economy is in recession.

  • "I do want to emphasize: What a recession really means is a broad-based contraction in the economy," Treasury Secretary Janet Yellen said on NBC’s "Meet the Press" this weekend.

Go deeper: Biden’s task will be all the more complicated if two big economic indicators — GDP and jobs growth — give different readings.

  • While growth may be slowing, the economy has added an average of 375,000 jobs a month over the past three months.
  • But Americans' views on the economy are no longer as closely tied to the unemployment rate after the pandemic, according to a new paper.
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