US parses what recession is

GDP report focus of a big economic week in the US that includes expected Fed rate hike

The economic and political stakes in the US will be heightened this week with a GDP report and another anticipated Federal Reserve rate hike, with President Joe Biden saying on Monday, “God willing, I don’t think we’re going to see a recession.”

The consumer confidence survey is due Tuesday; the Fed meets Wednesday on interest rates; the report on GDP, which is coming off a negative quarter, is due Thursday. The personal consumption expenditure index, which the Fed uses as its key inflation guide, will be released on Friday.

Director of the National Economic Council Brian Deese argued Monday that if this week’s GDP report from the Commerce Department shows a second consecutive negative quarter, it does not mean that the US is in a recession.

Using an argument that the White House used regarding an inflation report earlier this month, Deese said the second-quarter data will be “inherently backward-looking”, and pointed to the jobs created in that time frame.

“Never in the history of our country have we had a recession where the economy was creating jobs, period, let alone creating 400,000 jobs,” Deese told CNN.

Recessions have historically been declared after two quarters of negative GDP. The US economy retracted by 1.6 percent in the first quarter of 2022.

In a blog post on July 21, the White House Council of Economic Advisers said that two straight quarters of falling GDP doesn’t mean the country is in a recession.

“What is a recession? While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle,” the blog post states.

“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.”

The effort to reframe the definition of recession brought out the Biden administration’s political critics.

“The Biden Administration is trying to redefine what a ‘recession’ is to cover up the President’s failing policies,” US Representative Claudia Tenney, a New York Republican, wrote on Twitter. “But no matter how hard he tries, Joe Biden cannot change reality!” she added.

“If the press allows Biden to change the definition of ‘recession’ to gaslight the American people, then we know the media is irredeemably corrupt and partisan,” US Representative Mary Miller, an Illinois Republican, wrote on Twitter. “A major test for the so-called ‘fact checkers!'”

Treasury Secretary Janet Yellen said Sunday on NBC of second-quarter GDP: “Even if that number is negative, we are not in a recession now. And I would, you know, warn that we should be not characterizing that as a recession.”

“The colloquial definition is a sort of short-hand: two consecutive quarters of negative growth. But the formal definition in the US context comes from the National Bureau of Economic Research, which defines a recession as a ‘significant decline in economic activity that is spread across the economy and that lasts more than a few months,'” bloomberg.com wrote Monday.

When the Federal Reserve concludes its policy meeting Wednesday, it is expected to sign off on a second consecutive three-quarter-point (0.75 percent) hike, elevating its key interest rate to a range of 2.25 percent to 2.5 percent.

It would be the fourth rate hike since March, when the central bank announced a quarter-point increase. Since then, with inflation setting new four-decade highs, the Fed has tightened credit more aggressively.

“Until there’s very clear evidence of the labor market beginning to meaningfully deteriorate, the No 1 focus for the Fed must be inflation,” said Matthew Luzzetti, chief US economist at Deutsche Bank.

US Senator Elizabeth Warren, a Massachusetts Democrat, warned against the potential recessionary impact of the Fed continuing to raise rates.

“Inflation is a global phenomenon inflicting significant financial pain on families everywhere. Rising costs are an urgent problem, and interest rates play a key role in maintaining price stability,” Warren wrote in an op-ed piece in The Wall Street Journal on Sunday. “But urgency is no excuse for doubling down on a dangerous treatment. As with any illness, the right medicine starts with the right diagnosis. Unfortunately, the Fed has seized on aggressive rate hikes — a big dose of the only medicine at its disposal — even though they are largely ineffective against many of the underlying causes of this inflationary spike.

“Low unemployment and high inflation are painful, but a Fed-manufactured recession that puts millions of Americans out of work without addressing high prices would be far worse,” she concluded.

Since the Fed met in June, the government has reported that inflation as measured by the consumer price index accelerated to a 9.1 percent annual rate, the most since 1981. Though that jump reflected a spike in gas prices, which have since retreated some but stood at a national average Monday of $4.33 a gallon, according to price-tracking website gasbuddy.com, inflation worsened even after excluding the volatile energy and food categories.

Shares of Walmart, the nation’s largest retailer, fell nearly 10 percent in after-hours trading on Monday after the company cut its profit outlook for the second quarter and rest of the year, warning that high inflation is having an impact on consumer spending habits.

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart US is requiring more markdown dollars,” said Walmart CEO Doug McMillon in a statement. “We’re now anticipating more pressure on general merchandise in the back half [of the year].”

The Associated Press contributed to this story.

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