The last quarter saw a 0.9% decline in the U.S. economy.
The economy has shrunk for a second consecutive quarter. Gross domestic product (GDP) fell by 1.6% annually in the first quarter.
Recessions are commonly defined as two consecutive quarters of negative growth, but this is not the case. The National Bureau of Economic Research, a non-profit organization that takes no political stance, is responsible for determining if and when a recession is occurring in the American economy. This decision is made by a panel of eight economists on the NBER, taking into account a wide range of factors.
The current economic climate has been contested as a recession by the White House. It knows full well the significance of the economy in the upcoming midterm elections.
President Biden has pointed to rising employment and foreign investment in business as evidence of the economy's health. Biden concluded, "That doesn't sound like a recession to me."
How can there be a recession if new jobs are being created every day?
While two consecutive quarters of negative growth is typically indicative of a recession, Treasury Secretary Janet Yellen pointed out in a recent appearance on NBC's Meet the Press that the current economic climate is exceptional.
"When you're creating almost 400,000 jobs a month, that is not a recession," she said.
Still, either way you cut it, the economy has weakened.
The GDP report showed that businesses had retrenched. Undoubtedly, the cost of borrowing has increased as a result of the Federal Reserve's rate hikes. This means there is less capital available for investment. The biggest concern is whether or not this will begin to slow job growth.
With an overabundance of stock on hand, shops naturally reduced their own spending. And with mortgage rates on the rise, the housing market, which has been red hot during the pandemic, is beginning to cool.
There were, however, some bright spots. People were able to continue to reward themselves with vacations and dining out as wages increased. Earnings increased generally.
However, as the Federal Reserve continues to aggressively increase interest rates to combat high inflation, concerns of a recession have grown.
However, economic indicators have been all over the place.
Employment was decreasing in the run-up to previous recessions. Yellen did highlight the fact that the U.S. economy has been adding jobs on a monthly basis.
The economy is not in a recession, Yellen emphasized. "A recession is a period of general economic weakness. There is currently no evidence of that happening."
Yellen also highlighted positive data on Americans' credit quality and noted the continued strength of consumer spending.
The White House is uncomfortable with the term "recession."
The White House has made a point of stressing that negative growth in only two consecutive quarters is not necessarily indicative of a recession.
In light of the upcoming midterm elections, the White House is keenly aware of the negative image a recession and struggling Americans portray. Yet many Americans are already feeling the pinch as a result of inflation at a multi-decade high and the rising prices of everyday goods and services.
Sixty-five percent of voters who participated in a recent Morning Consult/Politico survey agreed that we are currently in a state of emergency.
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