Here's the Big Thing to know today: The US economy shrank in the second quarter of the year, and that does indeed meet the unofficial criteria for being in a recession. But, as you probably noticed, we're not rolling out the R-word in any definitive way yet (more on that in a minute).
The drop in second-quarter GDP activity — data that will be revised two more times — was driven mostly by a decline in inventory levels, my CNN Business colleagues report.
Basically, businesses have been scrambling to replenish stockpiles that got drawn waaaaaay down during the worst of the pandemic, when all of us were stuck at home thinking about ways to spruce up the house or expand the garden.
But now stores find themselves overstocked — we're all shopping a bit less now that pandemic aid has dried up and we're shelling out whole paychecks on food and gas.
The economy is slowing, which is precisely what the Fed wants to happen so that prices can get back to normal.
So we're not in a recession?
I hate to say it, but it depends on whom you ask. A lot of economists, plus President Joe Biden and Fed Chief Jerome Powell, say it's not likely. Take the GDP data with a grain of salt, as Powell put it yesterday.
Plenty of political pundits might say we are.
The debate about "recession" vs "not recession" is mostly semantics, but I get it — it's comforting to be able to put a label on things as a shorthand for everything that feels crummy. The economy right now is kind of like a patient with a mix of symptoms that don't necessarily align with one disease or another. Something's off, of course, but your doctor isn't going to isn't going to give you a diagnosis if they don't actually know what's wrong with you (or we hope they wouldn't, anyway.)
Yeah, we've got chronic inflation and less of an appetite for online shopping. But the labor market it is still pretty solid, with unemployment near a 50-year-low.
So, how do we know when we're in a recession?
Great question.
In the United States, a recession is determined by a panel of eight economists you've never heard of at the nonprofit National Bureau of Economic Research.
They have no predetermined meeting dates; their deliberations are private; they have no term limits and their appointment to the panel is determined by one man, NBER president and MIT economist James Poterba.
That seems weird...
It sure does! And, as my colleague Nicole Goodkind reports, there's plenty of fodder for critics of this system.
- For starters, every single one of the eight members is White, and in fact the panel has never included a person of color, according to Gary Hoover, co-chair of the American Economic Association Committee on the Status of Minority Groups in the Economics Profession.
- Each is over 60 years old.
- They are all associated with prestigious universities.
- There are just two women, one of whom is married to another member.
And don't hold your breath for this group to spring into action and give us all some clarity. They typically consider a bunch of stats over several months before weighing in.
BOTTOM LINE
Economists say the biggest reason it would be premature to call a recession based on Thursday's numbers is that the data can and probably will change. Subsequent revisions to first-quarter GDP figures, for instance, changed from an initial drop of 1.4% to 1.6%, and Thursday's numbers are just the first of three estimates.
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