More than half of Americans believe the United States is in a recession, according to surveys.
The White House seems to be anticipating an expected bad economic report and saying that is not the case.
The economy is in good health with a dynamic labor market and a low unemployment rate.
Pessimism about the economy is growing among many voters, with prices rising at their fastest pace in four decades. Several polls indicate that at least half of Americans believe the United States is in a recession, despite the economy creating jobs at a healthy pace and unemployment remaining stable.
But the Biden administration appears to be bracing for what should be a batch of dismal economic data capable of further fueling GOP attacks.
The first reading of second-quarter gross domestic product is due July 28, and estimates vary widely. Economists polled by Bloomberg forecast an annualized growth rate of 0.9% over the three-month period, up from the 1.6% decline in the first quarter, but still at a relatively slow pace. Still, the Federal Reserve Bank of Atlanta’s GDPNow model pegs second-quarter growth at -1.6%.
If Thursday’s report shows a further decline in output, the debate over the health of the economy will quickly escalate. The empirical definition of a downturn has long been consecutive quarters of negative GDP. The next data release could very well show it, but the White House is already explaining why defining a recession requires a lot more nuance.
For one, the National Bureau of Economic Research has much stricter criteria for deciding when a recession begins, members of the White House Council of Economic Advisers wrote in a blog post Thursday. The organization – which serves as the semi-official authority for deciding when business cycles begin and end – defines a recession as “a significant decline in economic activity that spreads throughout the economy and lasts more than a few months”. It also takes into account factors such as employment, consumer spending and industrial production.
This looser definition makes it less likely that the United States is actually in an economic crisis, the team said. The variables tracked by the NBER have shown “strong growth” since the start of the pandemic and have continued to improve during the first half of 2022. The unemployment rate remains at a historic low of 3.6%, and monthly job creation in the second quarter far exceeded the pre-pandemic trend.
Inflation, rising interest rates and falling demand all pose significant risks to the recovery, but even if the next GDP report shows another quarter of contraction, the economy is still in good shape overall. health, the economists said.
“The probabilities of a recession are never zero, but the trends in the data from the first half of this year used to determine a recession do not indicate a slowdown,” they said.
Even first-quarter GDP was not indicative of an economy in recession, the team added. Overall growth was dragged down by temporary trends that say little about the real strength of the economy. A decline in business inventories subtracted about 0.8 percentage point from growth, but the decline was only a reversal after businesses invested heavily in building inventory at the end of 2021.
The trade figures are putting even more pressure on GDP, but weak net exports reflect “our economic strength relative to that of our trading partners”, the economists said. Simply put, the United States was importing heavily to meet buyer demand, and other economies weren’t buying American goods because their recovery wasn’t as strong.
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