- Over half of Americans believe the US is in a recession, surveys show.
- The White House seems to be getting out ahead of an expected bad economic report and arguing that's not the case.
- The economy is in good health with a strong labor market and low unemployment.
Pessimism about the economy is growing among many voters with prices rising at their fastest pace in four decades. Multiple polls indicate that at least half of Americans believe the US is in a recession, despite the economy adding jobs at a robust clip and unemployment holding steady.
But the Biden administration appears to be bracing for what's expected to be a batch of dismal economic data capable of further fueling GOP attacks.
The first reading of second-quarter gross domestic product is due for release on July 28, and estimates vary widely. Economists surveyed by Bloomberg forecast an annualized growth rate of 0.9% through the three-month period, up from the first quarter's 1.6% decline but still a relatively slow pace. Yet the Federal Reserve Bank of Atlanta's GDPNow model pegs second-quarter growth at -1.6%.
Should the Thursday report show output shrinking again, debate around the economy's health will quickly intensify. The rule-of-thumb definition of a downturn has long been back-to-back quarters of negative GDP. The coming data release could very well show just that, but the White House is already explaining why defining a recession requires much more nuance.
For one, the National Bureau of Economic Research has much more stringent criteria for deciding when a recession starts, members of the White House Council of Economic Advisors wrote in a Thursday blog post. The organization — which serves as the semi-official authority for deciding when business cycles start and end — defines a recession as "a significant decline in economic activity that is spread across the economy and lasts more than a few months." It also considers factors such as employment, consumer spending, and industrial production.
That looser definition makes it less likely the US is actually in an economic slump, the team said. The variables the NBER tracks have shown "strong growth" since the start of the pandemic and continued to improve through the first half of 2022. The unemployment rate remains a historically low 3.6%, and monthly job creation in the second quarter handily surpassed the pre-pandemic trend.
Inflation, rising interest rates, and easing demand all pose significant risks to the recovery, but even if the coming GDP report reveals another quarter of contraction, the economy is still broadly in good health, the economists said.
"Recession probabilities are never zero, but trends in the data through the first half of this year used to determine a recession are not indicating a downturn," they said.
Even first-quarter GDP wasn't indicative of an economy in recession, the team added. Overall growth was dragged lower by temporary trends that say little about the economy's actual strength. A drop in business inventories subtracted about 0.8 percentage points from growth, but the decline was merely a reversion after firms invested heavily in inventory build-up at the end of 2021.
Trade figures put even more pressure on GDP, but weak net exports reflected "our economic strength relative to that of our trading partners," the economists said. Put simply, the US was importing plenty to match shoppers' demand, and other economies weren't buying American goods because their recoveries weren't as strong.