Is the US economy in recession or not?

New York (CNN Business) – If you’re not sure if the US economy is in a recession, you’re not alone.

For one thing, gross domestic product, a key measure of economic output, shrank for the second consecutive quarter this week, raising fears that the country is, or will soon, enter recession. On the other hand, the job market is still very strong, which tells us that the economy is still going strong.

Some economists describe two consecutive quarters of contraction as technical stagnation. And with good reason: 10 of the last 10 times the US economy has contracted for two consecutive quarters, a recession has been declared. But seven of the last seven recessions have seen massive job losses, and that’s not happening now.

There is no fixed standard that defines what a recession is in the United States. Instead, the formal appointment is determined by eight economists who work together on the Business Cycle Dating Committee. The group operates under an umbrella National Bureau of Economic Research (NBER), a private non-profit organization. Economists have not yet used the term ‘stagnation’.

The organization is governed by a relatively vague definition that allows room for maneuver: stagnation, they write“involves a significant decrease in economic activity that spreads throughout the economy and lasts more than a few months.”

Are we really in a recession? hard to say. But here we explain why it could be the United States. And why might it not be?

the exams

Business inventory problems play a major role in the economy’s ups and downs, and a large part of the economic downturn we’ve seen in the last quarter has been due to companies holding back from expanding those inventories. Last year, companies stockpiled merchandise to get ahead of supply chain issues and in anticipation of post-crisis consumer demand, but now they may have excess inventory.

Gross domestic product contracted at an annualized rate of 0.9% in the second quarter, but the slowdown in inventory buildup took two percentage points off production. This means that the economy would have grown if companies had not cleared their inventories. It also indicates that consumer demand may weaken, which is another sign of stagnation.

Recruit

Labor market It has been a source of strength for the economy and a beacon of hope among those who believe the United States can avoid a recession.

In June, it was Lost 98% of jobs during the pandemic. Unemployment remained the same Record lows in 2022the US economy has added 2.2 million jobs Since January, which is almost the fastest growth ever.

In May, there were about two jobs open for each job seeker, along with historically low levels of layoffs. The economy creates roughly 400,000 jobs a month, and wages grew in June. This is nothing like a normal recession.

High inflation and interest rates

The inflation It has reached historic highs in the United States, and it reduces the purchasing power of consumers.

US consumer prices hit their epidemic-era highs in June, jumping 9.1% year-on-year, according to the latest data from the Bureau of Labor Statistics. That number is higher than the previous figure, when prices rose 8.6% in the year to May.

(credit: Spencer Platt/Getty Images)

As a result, money is scarce in many American households: new data From the Bureau of Economic Analysis shows that Americans are saving much less than they did a year ago. In May, Americans saved just 5.4% of their personal disposable income, down from 12.4% a year earlier.

To counter inflation, the Federal Reserve has approved a series of interest rate increases this year. Higher rates keep prices under control by slowing down the economy. But the Fed is in dangerous territory. In the 11 times the Fed has raised interest rates, it has only managed to avoid a recession three times. During each of these cycles, inflation was lower than it is today. This has some analysts and market participants worried about a possible recession.

Consumer sentiment and spending

Consumer spending, the bulk of the US economy, is on the rise. It’s a good sign for the economy. The Commerce Department reported Friday that household spending grew 1.1% in June, compared to a revised 0.3% increase in May.

However, this growth may be due to higher inflation. In general, Americans are becoming more pessimistic about the economy.

The Conference Board’s index of consumer confidence fell in July for the third month in a row. About 43% of the 3,000 respondents said they believe there is a more than 50% chance the US will slip into recession in the next 12 months, up from just 13% in April.

performance curve

The shape of the yield curve, which plots the yield on Treasuries, is one of the most reliable indicators of the economy’s health, and has been pointing to an impending recession for most of July.

An inverted yield curve is often seen as a sign that investors are more nervous about the near future than the longer term, causing interest rates on short-term bonds to rise more than those paid on long-term bonds.

(Image source: David Paul Morris/Bloomberg via Getty Images

Federal Reserve Chairman Jerome Powell said on Wednesday that he does not believe the economy is currently in a recession, but yield curves say otherwise. They have gone into a “reversal” in recent weeks.

The yield curve inversion has preceded every recession since 1955, according to study Federal Reserve Bank of San Francisco.