Replies to post #121713 on Politics and Money

[lesgetrich]

U.S. economy just had a 2nd quarter of negative growth. Is it in a recession?

The U.S. economy shrank in the last three months by 0.9%.

This is the second consecutive quarter where the economy has contracted. In the first quarter, GDP, or gross domestic product, decreased at an annual rate of 1.6%.

While two consecutive quarters of negative growth is often considered a recession, it's not an official definition. A nonprofit, non-partisan organization called the National Bureau of Economic Research determines when the U.S. economy is in a recession. An NBER committee made up of eight economists makes that determination and many factors go into that calculation.

The White House has pushed back against calling the current economy a recession. It is no doubt aware of the role the economy is going to play in the midterm elections.

Can it be a recession if there are so many jobs being created?
Treasury Secretary Janet Yellen noted in a recent appearance on NBC's Meet the Press that while two consecutive quarters of negative growth is generally considered a recession, conditions in the economy are unique.

"When you're creating almost 400,000 jobs a month, that is not a recession," she said.

Still, either way you cut it, the economy has weakened.

The GDP report showed that businesses had retrenched. Undoubtedly, borrowing has become more expensive with the Federal Reserve ratcheting up interest rates. So there's less money to invest. The key worry is whether that will start hurting jobs growth.

What happens when people want all the air fryers and then, suddenly, they don't
Retailers had a glut of inventories to work through, so those businesses were also spending less. And housing, which has been running hot during the pandemic, is starting to cool with mortgage rates rising.

However, there were bright spots. Wages continued to rise and people were treating themselves by going out to eat at restaurants and also traveling. Income overall rose.

But fears of recession have grown considerably as the Fed continues to hike interest rates aggressively to fight high inflation.

And the economic data has been quite mixed.

The Fed's mission improbable: Beating inflation without causing a recession
In the run-up to previous downturns, for instance, the economy was shedding jobs. But the U.S. economy has been adding jobs month after month, as Yellen noted.

"This is not an economy that's in a recession," Yellen said. "A recession is broad-based weakness in the economy. We're not seeing that now."

Yellen also pointed to consumer spending, which has remained strong and she highlighted positive data on the credit quality of Americans.