Recession and Political Silly Season

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The U.S. has entered the official political silly season which is when analysts interpret monthly and quarterly economic reports and data through a highly biased political lens, writes Brian Wesbury, Chief Economist, First Trust. Unfortunately, he submits that the real unbiased analysis of economic reports and data rarely emerges.

Wesbury opined that the silly season started with politicians from the right proclaiming that the country was in a recession because real GDP declined in both of the first and second quarters of calendar year 2022. These individuals purposely overlooked that the unemployment rate has dropped 0.4 percentage points so far this year. And they fail to notice that payrolls are up an average of 471,000 per month, while industrial production is up at a 5.2% annual rate over the first six months of the year. Never mind that “real” (inflation adjusted) gross domestic income was up in the first quarter.

Although, two quarters of negative real (inflation-adjusted) gross domestic product (GDP) growth is commonly viewed as a strong sign that a recession is underway, it is not the official definition.

***Recession are foremost and always a “broad based decline in economic activity”.***

The National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy, views a recession as a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth. Additionally, “a recession is the period between a peak of economic activity and its subsequent trough, or lowest point,” the NBER says on its website.

Therefore, while negative GDP growth and recessions closely track each other, the consideration by the NBER of the monthly indicators, especially employment, means that the identification of a recession with two consecutive quarters of negative GDP growth does not always hold.

Thus, the economy is currently not in a recession since the NBER’s defines officially a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

“Our view is that a recession is coming, that monetary policy will have to get unusually tight for the Federal Reserve to bring inflation back down to its 2.0% target,” states Wesbury. “In turn, tighter money should induce a recession. But that takes time and the recession hasn’t started yet.”

References:

  1. https://www.ftportfolios.com/Commentary/EconomicResearch/2022/8/15/silly-season
  2. https://www.bea.gov/help/glossary/recession
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