The Recession Debate

The recession debate is fun.

This morning, the BEA released its first estimate of Q2 GDP, a decline of 0.9%. After Q1’s 1.6% decline, that’s the second consecutive negative print for US GDP growth, satisfying a widely used rule of thumb for defining recessions.

The thing is, the National Bureau of Economic Research is the official arbiter of US recessions, and their definition doesn’t even mention GDP. The NBER may well decide the current environment isn’t a recession, given that economic weakness is not particularly broad-based (the Q1 decline was driven mostly by net exports, and Q2 largely by inventories. Consumer spending, on the other hand, was quite healthy in the first half).

Then there’s Harry S Truman. As he once quipped: “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.” But with 3.6% unemployment and record labor market tightness, it’s neither.

The debate is fun, but it’s also rather pointless.

Whether the NBER ends up confirming what preliminary GDP numbers indicate or whether they don’t, what difference does it make? The word recession is just a name, one that tries to simplify a very complex subject. Why can’t we just tell it like it is? Economic growth is clearly under pressure. Inflation hurts. But (for now) people still have jobs and they’re still spending money.

Moreover, stock prices peaked more than 6 months ago. Does it really matter today if we’ve been in a recession or not? It’s been a bear market either way.

(By the way, I talked about the futility of predicting recessions nearly 3 years ago. Most of what I wrote then is still true today)

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Questions or comments? Let me know what you think

Thanks for reading!

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