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Is the US in a recession? New GDP data to widen debate – My Crush Live News

The first reading of US economic growth in the latest quarter, due on Thursday, will widen the ongoing debate over whether the country is or soon will be in recession.

Most economists polled by Reuters expect U.S. gross domestic product to grow, albeit slowly, in the three months from April to June. But about a quarter said it shrank for a second quarter in a row, which according to an oft-quoted rule of thumb would mean the world’s largest economy is in recession.

The definition “two-quarters” is convenient for analysts, journalists and the general public. But that’s not how economists think about business cycles, in part because GDP is a broad measure that can be affected by factors such as government spending or international trade. And the first reading is often revised, quite substantially, and should, as Federal Reserve Chairman Jerome Powell noted on Wednesday, be taken with a grain of salt. Instead, economists focus on data on jobs, industrial production, spending and income – and job growth in particular has remained strong so far. US employers hired more than expected in June and raised wages, but there are growing signs of a cooling labor market, with new claims for jobless benefits, for example, rising in recent weeks.

On the other hand, personal consumption data for May released earlier this month showed that spending and disposable income fell on an inflation-adjusted basis.

That prompted a flurry of gloomy forecasts for June, with data due on Friday, and growing speculation that a decline is imminent, if not already here. And things are likely to get worse, economists say.

Inflation is more than three times the Federal Reserve’s 2 percent target, and the central bank on Wednesday raised its key interest rate by three-quarters of a percentage point and signaled that more rate hikes are on the way.

These higher borrowing costs are expected to slow hiring and investment, further slowing already slowing economic growth. But whether the recession is already here is unclear, and the coming weeks are likely to involve sharp debates about the real health of the economy.

IS ONE RECESSION ALWAYS TWO CONSECUTIVE QS OF GDP DECLINE?

Usually, but not always. For example, GDP in 2001, after revisions, fell in the first three months of the year, recovered in the next three months, and fell again in the fall. Although there were not two consecutive quarters of declining GDP, the situation was defined as a recession as employment and industrial production declined.

The recession of the COVID-19 pandemic lasted only two months, according to economists afterward, from March to April 2020, although a sharp drop in economic activity during those weeks meant that GDP overall shrank in both the first and in the second quarter of the year.

WHO DECIDES AND HOW?

In the United States, the official call is made by a panel of economists convened by the National Bureau of Economic Research, and sometimes comes a year or more after the fact. The private, nonprofit research group defines it as “a significant decline in economic activity that spreads throughout the economy and lasts more than a few months.” The panel concentrates on things like jobs and industrial output, which are measured monthly rather than quarterly like GDP.

It examines the depth of any changes, how long the downturns seem to be, and how widespread the problems are. There are compromises. During the pandemic, for example, the depth of job losses exceeding 20 million positions offset the fact that growth resumed quickly, prompting the group to officially call the situation a recession in early June, before the end of the second quarter. . While each of the three criteria—depth, diffusion, and even duration—must be met individually to some degree, extreme conditions revealed by one criterion may partially compensate for weaker indications from another,” the group says.

SO WE ARE IN A RECESSION NOW?

Unlikely. Although the “two-quarter rule” has caveats and exceptions, there has never been a declared recession without job losses. Jobs are being added in the US by the hundreds of thousands each month. Wages are rising and demand for labor is still strong. “I don’t think the US is in a recession right now,” Fed Chairman Powell said on Wednesday.

The pace is likely to slow, but there would need to be a sharp reversal for the current path of job growth to turn into one that looks like a recession. Industrial production, another factor that played a major role in heralding the recession of 2001, began to tell a different story: It fell in June after stabilizing in May.

Since 1950, the United States hasn’t had two consecutive quarters of GDP contraction that wasn’t ultimately linked to a recession, which may make the current “are we or aren’t we” debate even more contentious.

WHAT IS THE SAHM RULE?

One of the criticisms of the NBER’s role as recession arbiter is that its members take their time to avoid reacting to changes in jobs, production or other data that turn out to be temporary. A closer real-time recession indicator, called Sahm’s rule after former Fed economist Claudia Sahm, is based on the unemployment rate. It states that when the 3-month moving average of the unemployment rate rises half a percentage point from its lowest level in the previous 12 months, the economy has entered a recession.

Sahm’s rule shows no sign of abating in the US. Instead, the unemployment rate has been below 4% and has been declining or stable since January.

WHY DOES THE R WORD MATTER? Talk of a recession and predictions that the US economy is headed for one could have an impact on what happens next.

Companies, investors and ordinary consumers make decisions about where and how to spend money based on how they think sales, profits and employment conditions will develop.

And they already do. GM Chief Executive Mary Barra this week said it was taking “proactive steps” to curb spending and hiring ahead of a potential economic slowdown, with further action expected if the downturn worsens. Economist Robert Shiller predicted in June that there was a “good chance” the US would slip into recession as a result of a “self-fulfilling prophecy” as consumers and companies prepared for the worst. “

Fear can lead to reality,” he told Bloomberg.

WHAT IS A “SHALLOW RECESSION”?

Recessions come in many forms. They can be deep but brief, like the pandemic recession that sent the unemployment rate briefly to 14.7%. They can be deep and scarring, like the Great Recession or the Depression of the 1930s, taking years for the labor market to regain lost ground. Economists and analysts have recently noted the possibility that the next US recession will be mild. Even the shortest and weakest recessions have cut jobs by more than 1%, which would currently amount to more than a million and a half people.

WHAT IS A GROWTH RECESSION?

Another idea discussed by some economists and analysts is a “growth recession,” in which economic growth slows below the long-term U.S. growth trend of 1.5 to 2 percent a year while unemployment rises, but not by much. That’s the scenario some Fed policymakers have envisioned as the best outcome of recent rate hikes.

WHAT IS THE RELATIONSHIP TO THE INVERSE YIELD CURVE?

When the market rate for a short-term loan exceeds that for a longer-term loan, this is known as an inverted yield curve and is seen as a harbinger of a recession. Alarm bells started ringing here. Historically, at least part of the yield curve has inverted before each recent recession.

The most widely followed measure of the yield curve, the difference between two-year and 10-year Treasury yields, inverted earlier this month and has remained so ever since.

Federal Reserve economists are looking to other parts of the bond market for clues to a recession, some of which are less comforting than before. The three-month to 10-year spread cited by researchers at the San Francisco Federal Reserve, for example, remains positive but has collapsed dramatically in the past two months.

WHAT IS THE RELATIONSHIP OF BEAR MARKET TO RECESSION?

The recent sharp selloff in stocks has also raised concerns.

Nine of 12 bear markets, or declines of more than 20%, that have occurred since 1948 have been accompanied by recessions, according to investment research firm CFRA.

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