It’s hard to recall a White House deploying as much effort to pre-spin economic data as the Biden team has with Thursday’s gross domestic product report.
- There’s a real possibility it will show a second straight quarter of contraction. It’s likely to prompt an even more exhausting — and confusing — discourse about the economy’s health.
Why does it matter? Debates about whether a recession has begun feature both misleading criticism of the Biden economy and: excessive dismissal of the economic risks ahead by the administration’s allies.
- To protect you against both, here are five key points to keep in mind.
1. US economists really do defer to the National Bureau of Economic Research business cycle dating committee to make rulings about when recessions start and end, and last for decades. This is not some new idea invented by the Biden team to deflect recession accusations.
- The committee bases its decisions on a wide range of data, not a simplistic “two consecutive quarters of GDP contraction” frequently invoked by commentators.
- But it: is: a convention that media organizations and economists have long embraced. “For almost all economists, recession is what the bureau says it is,” wrote the New York Times — in September 1974!
2. Even if the Biden team is right that the economy didn’t slip into a recession during the first half of the year — which, based on the data the NBER committee emphasizes, looks to be true — that doesn’t mean we’re in the clear.
- It is a distinct possibility that the economy was still expanding in June, but that a recession began in July, or will in August or later. Some evidence already points in that direction.
3. Not in a recession ≠ everything is great. For normal civilians, “recession” can be a catch-all term for when economic conditions feel crummy. So it makes sense that ordinary people would see the current environment, when inflation is surging faster than wages, as a recession.
- To economists, though, “recession” is specifically a period of broad-based contraction in economic activity.
- A deep recession technically ended in mid-2009, for example, but a “jobless recovery” still felt terrible well into 2010.
4. The NBER is slow, but not political. The business cycle dating committee does not aim to be first with its recession calls, but rather to make definitive judgments that need not be revised later.
- So even if a recession is beginning this summer, the committee won’t make a call until the data decisively points that way, which could be many months away.
- The eight economists who comprise the committee include a couple with identifiable political leanings. Robert Hall, who has chaired the committee since 1978, is with the conservative Hoover Institution; and member Christina Romer was an Obama economic adviser. But they are mostly non-partisan technocrats.
5. This whole debate may be moot. It’s certainly a possibility that GDP contracted in Q2 — but the consensus forecasts suggest the number will turn out to be slightly positive, rising at a 0.5% annual rate.
- Moreover, whatever the initial GDP release says on Thursday morning, it will be extensively revised as more complete data becomes available, which could turn a negative number positive or a positive number negative.
- From the so-called “advance” GDP estimate to the final one, the average swing in the annual growth rate is 1.2 percentage points, the Bureau of Economic Analysis says — and can go either direction.
The bottom line: There will be a lot of focus on Thursday, especially if it comes in negative. But the more important question is if the economy, as measured by a broad range of indicators, can maintain its momentum or is faltering heading into the fall.