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Jill On Money: The 'recession' label is not as important as YOU

Jill Schlesinger on

After the Fed raised short term interest rates by 0.75% to a range of 2.25-2.50%, Chairman Jerome Powell said that the U.S. is not currently in a recession, which he described as a “broad based decline” and then added, “that’s not what we have now.”

Powell noted that it’s hard to square a recession with the still-solid labor market.

To underscore that point, Powell recounted stats that showed continued progress over the first six months of the year: the U.S. economy has created 2.74 million jobs, the unemployment rate remains near 50-year lows at 3.6 % and there are more than 11 million job openings.

Recessions are usually highlighted by a big slowdown in the job market, highlighted by an increase in layoffs and a rise in the unemployment rate.

A day after the announced Fed rate hike, the government released the Gross Domestic Product (GDP), which measures the total value of goods and services produced in the US. GDP is often used as a scorecard of the economy and according to the Bureau of Economic Analysis (BEA), it is “the most popular indicator of the nation's overall economic health.”

The GDP reading for the second quarter found that the economy shrank at an annual pace of 0.9%, as consumers and businesses pulled back on spending amid high prices. On the heels of a negative first quarter (-1.6%), the report amplified fears of a recession.

 

While two consecutive negative quarters often presages a more pronounced slowdown, that is not how the U.S. defines a recession.

The National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee is responsible for determining the beginning and end of recessions. To do so, they analyze various data points before making the call, which usually happens after the fact.

Although you might think that economics is a science, it is subject to interpretation and “There is no fixed rule about what measures of economic activity contribute information to the process or how they are weighted in our decisions,” according to NBER.

Whether or not NBER officially makes the recession call, it’s becoming obvious that a slowdown from last year’s growth of 5.7% (the fastest GDP since 1984) has begun – and that a lot of Americans are struggling to make ends meet amid high inflation.

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