White House economic advisers issued a note on Thursday clarifying the definition of recession prior to the release next week of probably dismal economic data.
Most economists generally look for two consecutive quarters of decline in gross domestic product (GDP) to determine whether an economy has entered a recession. The White House Council of Economic Advisers, however, opposes this definition in a new blog.
“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 officials wrote.
The second-quarter GDP data will be released on July 28.
The U.S. economy shrank at an annualized pace of 1.6 percent in the first quarter, and most economists are now forecasting another drop in the second quarter.
The Atlanta Federal Bank’s GDPNow estimate shows that the United States is currently in an economic downturn. The model projects that the contraction in the second-quarter GDP would be negative 1.6 percent.
Recessions, according to the White House, should be determined and “based on a holistic look at the data,” by taking into account the labor market, consumer and business spending, industrial production, and earnings, as opposed to economic growth data in just two quarters.
The White House claims that the most recent economic data, including the strong jobs market, do not indicate a recession.
“Based on these data, it is unlikely that the decline in GDP in the first quarter of this year—even if followed by another GDP decline in the second quarter—indicates a recession.”
However, many economists believe the chances of a “soft landing” for the U.S. economy have diminished. Economic activity has been slowing for the past several months. Consumers are cutting back on their spending due to rising inflation and declining real wages. In addition, a rising-rate environment is expected to make it harder to obtain credit or service debts. As a result, demand for goods and services is projected to deteriorate.
By Emel Akan
