July 27, 2022

Recession Debate

Facing a potentially grim report this week on the economy’s overall health, President Joe Biden wants to convince a skeptical public that the U.S. is not, in fact, heading into a recession. The Commerce Department on Thursday will release new gross domestic product figures. Top forecasts such as the Atlanta Federal Reserve’s GDPNow are predicting that the figure will be negative for the second straight quarter — an informal signal that the country is stuck in a downturn…

“‘Two negative quarters of GDP growth is not the technical definition of recession,’ National Economic adviser Brian Deese insisted during Tuesday’s White House press briefing. He added that ‘the most important question economically is, whether working people, and middle class families, have more breathing room.’ Deese and other members of the Biden administration are pre-emptively telling voters not to judge the economy by GDP or inflation alone.” AP News

Many on both sides argue that regardless of whether the economy is officially in a recession, many people are unhappy with the current situation:

“What in the world is a ‘pre-recession’? White House press secretary Karine Jean-Pierre floated out that term yesterday while denying that the US has entered a recession, apparently hoping to convince people that we’re not even close to one… This new term is rather amusing, given that the White House won’t define what a recession is…

“[Regardless] Voters don’t make decisions on NBER declarations but on how they personally experience the economy… An economy that erodes buying power, forces consumers to go into debt for normal expenses, and leaves them to scale down savings is not a good economy, no matter whether we call it a recession or not. And that’s the economy that Joe Biden and Democrats have delivered, and the lived experience that drives voter choice and approval and favorability ratings.”
Ed Morrissey, Hot Air

For many Americans, it already feels like a recession. Soaring prices for, well, just about everything, make it tougher to pay for everyday expenses and monthly bills. The stock market has tanked this year. Home sales have started to slip. Consumer confidence is low. A recent Morning Consult/Politico poll showed that 65% of US voters said in mid-July that they think we're in a recession… And according to a survey last month from Boston Consulting Group, nearly 80% of investors anticipate a US recession will start some time within the next 12 months…

“[Yet it’s] worth remembering that if there is a recession, the Fed could quickly reverse course and start cutting rates again to try and restart the economy. That's exactly what the central bank did after a series of rate hikes in 1999 and early 2000, just as the dot-com boom was going bust. But once the economy went into recession in 2001, the Fed slashed rates 11 times that year… [BCG's Hady Farag] said most investors don't seem to be expecting a repeat of the early 1980s or another Great Recession like 2008. ‘No two recessions are alike. I don't think people are deeply concerned about a major recession or massive stagnation,’ he said.”
Paul R. La Monica, CNN

Other opinions below.

See past issues

From the Left

“There are better indicators [than two quarters of economic contraction]. The Sahm Rule, developed by Claudia Sahm, a former Fed economist… tries to identify the start of recessions by looking for significant increases in the unemployment rate. It works really well. In fact, if we didn’t have the N.B.E.R. to make the determination, there would be a good case for viewing the Sahm Rule not as a predictor but as a definition: A recession has begun when the Sahm Rule says it has. And right now the rule emphatically does not say that we’re in a recession…

“That’s partly because the G.D.P. numbers seem out of sync with many other economic indicators — part of a general picture in which economic data seem to be telling inconsistent stories. (Perhaps because, to use a technical term, we’re still somewhat discombobulated by the pandemic.) Employment growth, for example, has been solid. Is that consistent with a recession? Even gross domestic income — a number that in principle should be literally equal to G.D.P. but is estimated using different data — isn’t telling the same story.”

Paul Krugman, New York Times

Economists agree that the risks of a recession are rising. The Federal Reserve is raising rates aggressively to try to tame inflation… Higher borrowing costs are all but certain to lead to slower spending by consumers, reduced investment by businesses and, eventually, slower hiring and more layoffs — all hallmarks of an economic downturn…

“But the U.S. economy still has important sources of strength. Unemployment is low, job growth is robust, and households, in the aggregate, have lots of money in savings and relatively little debt… Figuring out whether a recession is happening in real time is hard — economists often disagree. But it is usually clear in hindsight, which is why the dating committee waits so long to make its pronouncements.”

Ben Casselman, New York Times

From the Right

“Instead of admitting the economy is shrinking, Team Biden touts a test indicating that a recession is not underway unless ‘the three-month moving average of the unemployment rate rises by at least half a percentage point (50 basis points) relative to its lowest point in the previous 12 months.’ ‘Moving average’ is an apt phrase that evokes the circus shell game the Biden folks use to define away their failures…

“Biden’s advisers boast that the economy is on the path to ‘steadier and more stable growth.’ The leading economic indicators index has fallen four months in a row. The Purchasing Managers Index and services index are both signaling recession. The University of Michigan Surveys of Consumers last month reported the lowest recorded level of consumer confidence ever (going back to 1952). Monday’s Dallas Fed Manufacturing Outlook Level shows rapid and sharp contraction in Texas; one survey respondent lamented that ‘the economy is in shambles.’ The economy is deteriorating because of Biden’s policies.”

James Bovard, New York Post

“Considering the mess we’re in, an economic paradigm shift is in order. The Democratic economic strategy of vast government spending and easy money has failed. A better agenda would let the Fed target stable prices while policy makers on Capitol Hill and the White House target incentives for growth to counter the tighter money that will be required to reduce inflation…

“What would this mean at the current moment? Take all tax increases and more government entitlements off the table. Put a moratorium on new regulations and declare an end to the White House war on fossil fuels. Reduce tariffs and cut trade deals with Britain, Japan and others in the Asia-Pacific that want the U.S. as a trading alternative to China. Then make permanent the tax cuts in the 2017 reform that expire as early as 2025.”

Editorial Board, Wall Street Journal

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