The economy may be slowing but the U.S. government is working hard to convince you that this is not a recession, triggering discussions over what defines the “R” word and accusations that the government is trying to redefine the term for the sake of politics.
Consumer spending is up, Americans’ finances are solid for the most part, and the economy added more than 372,000 jobs in June with unemployment at a 50-year low of 3.6 percent.
Informally, most people in finance consider it a recession when real GDP contracts for two consecutive quarters. The economy shrank 1.6 percent in the first quarter of 2022 and some economists forecast it may contract again in Q2 for the second quarter in a row.
“A recession is a broad-based contraction that affects many sectors of the economy—we just don’t have that,” Treasury Secretary Janet Yellen said Sunday on NBC’s “Meet the Press”, setting off criticism on social media.
“When the vaccines failed to prevent infection, they redefined vaccination. When the economy fails to grow, they redefine recession” tweeted Republican Rep. Thomas Massie of Kentucky.
Yellen cited the private nonprofit National Bureau of Economic Research as the arbiter of whether or not there is a recession. A group of economists at the NBER use a variety of measures beyond real GDP to make it official including employment data, inflation, personal income and savings rates, spending and industrial production.
“I would be amazed if (NBER) would declare this period to be a recession, even if it happens to have two quarters of negative growth,” Yellen said. “We have a very strong labor market. When you are creating almost 400,000 jobs a month, that is not a recession.”
While the economy slows, the labor market remains strong. U.S. households earned more than ever through the end of May, despite inflation. Before the pandemic, the lowest layoff rate ever was 1.1 percent. It has been lower than that for more than a year, Fortune reported.
“Big Short” investor Michael Burry, a former hedge fund manager, slammed the White House for downplaying the risk of recession and he sounded the alarm on credit-card debt, labor shortages and inflation.
“The White House would like you to redefine a recession as one in which consumers are not borrowing on credit cards to pay for inflation, and neither is the labor force inadequate for the size of the economy. GDP out Thursday, not that there’s anything wrong with that,” Burry tweeted.
Burry cited written material posted by the White House on July 21 denying that two consecutive quarters of declining GDP constitute a recession. “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.
This is not the first time the Biden administration has been accused of denial relative to the economy. When inflation started to send prices soaring in 2021, some Democrats engaged in denial, using terms such as “highly unlikely”, “transitory”, and “temporary” to describe the chances that this was inflation.
Yellen stuck with her story that high U.S. inflation would be “transitory” in an Oct. 12, 2021 CBS interview. Federal Reserve Chairman Jerome Powell repeatedly downplayed the risk of inflation earlier in 2021 before finally admitting in December that he was retiring the word “transitory” to describe the inflationary outlook. Biden said on Dec. 10, 2021, that the inflationary crisis had reached its “peak.”
“It looks like the Biden White House is attempting to insulate itself from news of an impeding recession…by changing the definition of a recession,” tweeted Phil Magness, an economic and political historian and data analyst.
Political and economic commentator Andrew Puzder, the former CEO of CKE Restaurants, wrote in a Daily Mail column that Biden is to blame for his low approval rating. “With blatant lies like these about the inflation crippling America, it’s no wonder that Biden’s approval rating is in the toilet” read the headline on Puzder’s article.