Gross Domestic Product is the most common measure of an economy’s performance. For the past two quarters, it has shown that the economy has contracted. So stagnation, right? wrong – wrong – wronged
Before delving into why I didn’t think the economy was in recession during the first half of the year, it’s worth noting that things are pretty weird right now. Contradictions abound. All this confusion is caused by turning the economy off and then on again. 2020 hurt everything. everything.
People are upset because they think they have been lied to. “They move the goalpost.” I get it. Inflation is crowded and people are getting hurt and mistrustful, and “this is just another episode of political nonsense.”
Ben and I talked about defining recession in our podcast, and we sided with the White House on this clip. One commented, “Serious question. Why isn’t this so controversial? Sounds crazy to me.”
The National Bureau of Economic Research is the official arbiter of where we are in the business cycle. They do not define a recession as “two consecutive quarters of negative GDP growth,” which is widely accepted as a rule of thumb. Here is their view:
“The National Bureau of Economic Research’s traditional definition of a recession is a significant decline in economic activity that spreads through the economy and lasts more than a few months.”
In 1987, when the great Jason Zweig first became a financial reporter, he asked the following question:
The financial press often mentions the definition of a recession as two consecutive quarters of decline in real GDP. How does this relate to NBER recession dates? “
to fully reply, click herebut there is one part I wanted to isolate:
“We don’t just quantify economic activity with real GDP, but we look at a range of indicators.”
Let’s talk about those indicators. The Federal Reserve Bank of Dallas published an article yesterday, “The US probably won’t slip into recession in early 2022 despite negative GDP growth. “
They provided some compelling evidence that we were not in a recession. Nonfarm employment and industrial production are shown in the first half of the year compared to previous recessions.
“The gray lines in Chart 1 show the movements of non-farm payroll and industrial production in each previous business cycle relative to the peak of that cycle (month 0 = 100); the average across all previous cycles is the black line… the red line is the movement of the indicator between June 2021 and June 2022 relative to the level in December 2021.”
They go one step further and compile a composite index of recession indicators to get a comprehensive view of the economy.
Does this sound like a recession to you?
Well, so what? Maybe we’re not in a slump, but there’s definitely a lot of pain out there. And a lot of pessimism. If everyone feels we’re in a recession, why does it matter what the data says? First of all, not everyone feels that we are in a recession. People on the internet may have convinced you to, but Twitter is not the real world. durable goods orders It does not reach all-time highs in a recession. Travel companies don’t do that Override estimates and raise guidance during downturns. And the world’s largest company doesn’t have the best quarter in June during the recession.
I’m not pointing fingers, personally I’ve been more pessimistic than I am usually about the economy. I have been proven wrong.
There is still a chance for the economy to contract. Inflation may have taken longer to hit the consumer due to the influx of money they received during the pandemic and their desire to spend after they closed. The Fed might push it away. The sense of the coming stagnation may cause companies to regress to the point where it becomes more difficult to get a job.
One or more of these things may happen during the second half of the year. But I don’t know how you can look at the data and say it happened during the first half.