This has two implications for the upcoming BEA release. The first is that, even if the BEA shows GDP growth to have been negative for two consecutive quarters, the NBER committee is very unlikely to conclude that a recession started in the first quarter of 2022. That conclusion would be too far out of line with GDI, employment growth, and other economic indicators from the first quarter.
Second, the GDP figures will soon be revised. This is routine, and revisions are substantial: the mean absolute revision for a given quarter – even just going from the third to the final BEA release (after mid-year “benchmark revisions”) – is 1.2 percentage points, for a sample ending in 2018. This is the main reason why the NBER committee waits so long – 11 months, on average – before calling turning points.
When the BEA undertakes its comprehensive “benchmark revision” of the National Income and Product Accounts – this year, the results are set to be released in September, instead of July – it could well revise first-quarter GDP growth upward, conceivably even by enough to turn it positive. Revisions historically have moved GDP in the direction of GDI more often than vice versa. In that sense, GDI may be a more reliable measure of domestic output than GDP.
Brace yourself for headlines claiming that the US economy is in recession, with all the public and market reactions that will trigger. But do not be surprised if you are told the opposite two months later.
Jeffrey Frankel, professor of capital formation and growth at Harvard University, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He is a research associate at the U.S. National Bureau of Economic Research.