Technically, it’s official … kind of. After the second straight quarter of a declining economy, the U.S. is technically in a recession — a definition triggered when a country’s real gross domestic product (GDP)—the most-watched indicator of economic activity—contracts for two or more consecutive quarters.
Most economists agree that this defines a recession. However, the White House is reluctant to use the “R” word, pointing to underlying strength in the economy, while Republicans say the contraction meets the commonly used definition of recession.
U.S. GDP fell by a 0.9 percent annual rate in the second quarter compared to the first quarter, measured on a seasonally adjusted basis, the Commerce Department reported on Thursday. A decline in retail trade and in housing investment were among the factors driving the decrease.
GDP fell at a 1.6 percent rate in the first quarter of 2022 compared to the 6.9 percent GDP annual rate increase in the fourth quarter of 2021.
The GDP is just one of several signs that the U.S. economy is contracting. Inflation has been at a 40-year high this year as prices skyrocket for staples such as food, gas and lodging. Applications for unemployment benefits are trending higher, consumer sentiment has fallen and household spending has downshifted, Wall Street Journal reported.
The “R” word poses a problem for Democrats going into the midterm elections, which will determine the party that controls Congress. The Biden administration has tried to control the economic narrative, with Biden and top Federal Reserve economists dismissing inflation.
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The White House wants to convince Americans that the economy has underlying strength, including an unemployment rate near a 50-year low but polls show that voters are not loving the economy.
In a July 28, 2022 press release, the Commerce Department highlighted pluses in the economy, including numbers showing that current-dollar personal income increased by $353.8 billion in the second quarter, compared with an increase of $247.2 billion in the first quarter. The increase mostly reflected private wage and salary increases and personal income from assets and rental income.
Disposable personal income also increased — by $291.4 billion, or 6.6 percent, in the second quarter, compared to a decrease of $58.8 billion, or 1.3 percent, in the first quarter.
“A recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that,” Treasury Secretary Janet Yellen said Sunday on NBC’s “Meet the Press”, setting off criticism on social media.
Republicans are using inflation and GDP figures to argue that the Biden administration is trying to redefine “recession” and play down signs of an economic downturn.
“When the economy fails to grow, they redefine recession” tweeted Republican Rep. Thomas Massie of Kentucky.
Absent a precise definition of a recession, identifying it is the domain of the nonprofit National Bureau of Economic Research. A recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” NBER says on its website.
Brian Deese, director of the White House National Economic Council, described the state of the economy as more of a transition than a recession. The economy is transitioning from a strong recovery after the covid-19 pandemic lockdowns to a period of steadier, more stable growth, he told reporters earlier this week.
“The totality of the economic data is consistent with that type of transition and is not consistent with a recession,” Deese said.
When inflation started soaring in 2021, some Democrats engaged in denial, using terms such as “highly unlikely”, “transitory”, and “temporary” to describe the chances that this was inflation.
Early in Joe Biden’s presidency, he pointed to lower unemployment as a sign of a rebounding economy amid the pandemic, even as leading polls sounded the alarm that inflation would be a problem for him.
Federal Reserve Chairman Jerome Powell repeatedly downplayed the risk of inflation earlier in 2021 before finally admitting in December that he was retiring the word “transitory” to describe the inflationary outlook.
READ MORE: The Federal Reserve Doesn’t See A Recession Coming But Most CEOs Do: Who Are You Going To Believe?
Photo: Jeboria Gerald, second from right, gives away milk at Farm Share food bank, July 20, 2022, in Miami. Long lines are back at food banks around the U.S. as working Americans overwhelmed by inflation turn to handouts to help feed their families. (AP Photo/Lynne Sladky)