President Joe Biden’s administration is downplaying data due this week that could show the US economy contracted for a second straight quarter -- a development that would match one standard definition of a recession.
The administration’s message: what’s often called a “technical recession” isn’t necessarily a real one. At stake is winning a political-messaging battle with Republicans over how effective Biden’s policies have been in spurring a post-pandemic recovery.
Biden’s aides, including Treasury Secretary Janet Yellen, have fanned out in recent days in preparation for Thursday’s quarterly gross domestic product data, explaining that the formal definition of a recession is complex and runs deeper than simply two quarters of negative growth.
They’re arguing that the current picture is complicated, with global supply shocks and fluctuating commodity prices offset by a robust labor market. The US added more than a million jobs in the second quarter, National Economic Council Director Brian Deese highlighted Monday. There’s never been a US recession where the economy didn’t lose jobs, he also said.
“We face an economy with very significant global challenges,” Deese said in an interview. “Our focus is on what we can do on policy to try to address those challenges -- and how to then try to increase the prospects that we can move through the process, this period of uncertainty, to a period of more stable, steady growth.”
The median forecast for second-quarter GDP is for a 0.4% annualized gain, following a 1.6% contraction in the first three months of the year. But 20 of the 63 economists surveyed by Bloomberg currently expect a drop -- helping fuel the recession debate.
“With growth tracking very low this quarter, there is elevated risk that second-quarter 2022 GDP is negative and marks a technical recession in first-half 2022,” Morgan Stanley economists led by Ellen Zentner wrote in a July 22 note.
Biden’s team is drawing a distinction, including in a blog post, between what’s officially regarded as a recession and what’s generally referred to as a “technical 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.” A dedicated NBER panel bases the determination on criteria including the depth, diffusion and duration.
Deese took issue with the characterization of two quarters of GDP declines as a “technical” recession -- terminology that’s used widely by economists and investors alike.