MUSKEGON, Mich. — New numbers from the US Bureau of Economic Analysis show the US economy contracted once again in the second quarter of 2022, with GDP shrinking by just under a percentage point.
The data marks the second quarter in a row GDP has contracted, stoking fears of a recession being on the horizon.
But are we already in one?
THE QUESTION:
“What is a recession? Are we in one?”
OUR SOURCES:
- The US Bureau of Labor Statistics
- The National Bureau of Economic Research
- Brian Long, Ph.D, C.P.M.--director of supply chain research, Grand Valley State University
THE RESULT:
The non-partisan National Bureau of Economic Research officially determines when a recession begins and ends in the US.
By that standard, the answer is no, though economists appear split.
While some metrics show the beginnings of an economic downturn, many also indicate the US economy is not yet in a period of recession.
Many experts, however, do seem to agree on one thing: if it’s not here yet, a recession will likely occur at some point in 2022.
WHAT WE FOUND:
“Right now, we cannot declare that we are in a recession,” Long asserted.
Yet, there is no hard-and-fast consensus regarding what actually constitutes a recession.
One of the most common benchmarks is two consecutive quarters of negative GDP growth, which is what new data from the Bureau of Economic Analysis showed Thursday.
“We have modified that to include… real personal income, personal consumption, production, wholesale and retail activity,” Long said. “The National Bureau of Economic Research really determines when a recession begins and ends.”
The Bureau’s Business Cycle Dating arm utilizes a broader, more complex methodology to make that determination.
It defines the period between peaks and troughs as a recession with all of that data taken into account.
The Bureau uses three criteria to do that:
- Depth
- Diffusion
- Duration
On their website, it notes each aspect must be considered both individually and collectively.
Additionally, that “extreme conditions revealed by one criterion may partially offset weaker indications from another.”
“Consumer liquidity is very high right now and some business is still very high right now, which is not typical of what happens,” Long explained.
Add-in sectors like the labor market…
Statistics from the US Labor Bureau show the unemployment rate on the decline even from the beginning of 2022 and still hovering near historic multi-decade lows.
Then there’s job creation, averaging around 450-thousand every month since January, which is not characteristic of a recession.
“However, if that number starts to dry up… obviously at that point, we are in a recession,” Long related.
Then there’s the idea that just talking about an economic downturn can make it reality.
That’s per the Austrian Theory of Economics, which suggests psychology and public perception can bring-about a kind of self-fulfilling prophecy.
“A bubble always bursts,” Long said. “If that bubble does burst… (we’re) going to have at what appears to be now a relatively short recession.”
Something else to consider: Thursday’s GDP numbers are an estimate and will likely change for better or worse as new data is taken into consideration.
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