WASHINGTON (AFP) – Now that the US economy has posted two consecutive quarters of negative growth, is it in recession? Opinions are starkly divided, and President Joe Biden is definitely in the No camp.
The “R” word is akin to profanity in some Washington circles these days, especially within the Biden administration.
Just defining exactly what a recession is and when it begins has sparked furious debate – based as much around politics as economics.
“That doesn’t sound like a recession to me,” the US president said on Thursday (July 28) after the Commerce Department reported that GDP declined at an annual rate of 0.9 per cent in the second quarter, following a bigger 1.6 per cent drop in the first three months of 2022.
While not the official definition, two quarters of negative growth is commonly viewed as a strong sign that a recession is underway – but the veteran Democrat’s government has been at pains for a week to explain why the term does not apply.
“How Do Economists Determine Whether the Economy is in a Recession?” the White House said in a blog post last week, apparently trying to get the jump on Thursday’s data release.
“While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle,” the White House said.
Of course, opposition Republicans quickly picked up on the spin.
“Newsflash for Joe Biden: You can’t change reality by arguing over definitions,” the Republican National Committee said in a statement on Monday.
‘One official arbiter’
So beyond the political spin machine, what really is a recession?
In a note on its website, the International Monetary Fund insists there is “no official definition of recession.”
“Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country’s real (inflation-adjusted) gross domestic product (GDP),” the Washington-based global lender says.
For the IMF’s chief economist Pierre-Olivier Gourinchas, “the general assessment as to whether the economy is in a recession overall is a little bit more complex.”