Below is a cut and paste from the July 28, 2022 news release by the Bureau of Economic Analysis (BEA) providing the Advance Estimate for the Second Quarter GDP.  Just as I predicted, the Republicans, Fox News, and the conservative media have used this information to declare that the U.S. economy is in recession based on two consecutive quarters of GPD decline.  They have jumped the gun for purely political purposes, and this action is both premature and irresponsible.  Let me explain.  

As you can see from the title of the graph and the accompanying text, there was a GDP decline of 1.6% in the first quarter, and the “advance” estimate of 0.9% for the second quarter.  The release clearly indicates this “advance” estimate is based on source data that are incomplete or subject to further revision.  Also, a second estimate for the quarter will be made on August 25, 2022, based on more complete data.  Thus, data for the second quarter are far from final, and are subject to change. 

See for yourself—below is a cut and paste from the BEA’s press release.

Gross Domestic Product, Second Quarter 2022 (Advance Estimate)

Real gross domestic product (GDP) decreased at an annual rate of 0.9 percent in the second quarter of 2022 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 1.6 percent.

The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency (refer to “Source Data for the Advance Estimate” on page 3). The “second” estimate for the second quarter, based on more complete data, will be released on August 25, 2022.

The fact is that calling a recession is based on a lot more than two consecutive quarters of GDP decline.  While many use this metric as a rule of thumb for defining a recession, and while some countries like Great Britain actually use this standard, it is not an “official designation” in the U.S. Let me quote from the Bureau of Economic Analysis, an independent federal statistical agency:

While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy. The NBER recession is a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth. Therefore, while negative GDP growth and recessions closely track each other, the consideration by the NBER of the monthly indicators, especially employment, means that the identification of a recession with two consecutive quarters of negative GDP growth does not always hold.

-Bureau of Economic Analysis

There is wisdom in taking a broader approach that considers a number of indicators to reach the conclusion that there has been, “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

Relying solely on two consecutive quarters of GDP decline is both limiting and potentially misleading.  For example, when it comes to international trade, the number of items imported into the U.S. is a metric that could have both positive and negative implications for the American economy.  Imports can lead to GDP declines because the U.S. is sending more of its money overseas. However, if the U.S. is importing many goods from other countries, that can actually signal that the economy is growing and that people have incomes to buy the imported products.  During the first quarter of the 2022, the economy was down, as measured by GDP (-1.6%).  But a big part of this decline was due to a surge in imports, which is more a sign of economic strength than weakness.  

Also, if we’re going to focus on GDP decline, wouldn’t we want to consider the magnitude of decline?  For instance, the last time a recession was called (2^nd quarter of 2020), there was a huge 30% decline in GDP (see graph), while the decline in the 2^nd quarter of 2022 is a mere 0.9%.  

Also, if we’re going to look at impacts that are spread across the economy, we surely need to consider employment and unemployment.  In the recession of 2020, more than 20 million people lost their jobs, and the unemployment rate shot up to almost 15%. Conversely, in our current situation (July 2022), the unemployment rate is holding steady at a near-record low of 3.6%; and job growth the past 18 months has continued at record levels.  

I am critical of Republican leaders, Fox News, and the conservative media for irresponsible behavior.  In particular, as I watched numerous programs on Fox News, the reporters and personalities not only proclaimed that the country was officially in recession, they also criticized President Biden for trying to hide the ball and argue that two consecutive quarters of GDP decline was not the official standard.  Also, they went on to condemn Biden for a failed economy—he had single-handedly driven the country into a recession.  And, they proclaimed, voters would hold Democrats responsible in the upcoming midterm elections.  

Sadly, condemning the other side and winning elections is more important than honesty in reporting the news, and, more important, actually solving the problems we face.  The worldwide pandemic has not only resulted in millions of lives being lost, but has also had huge implications for supply chains, high rates of inflation, and struggling economies around the world.  Our leaders didn’t create these problems—we shouldn’t be blaming one another.  Instead, Republicans and Democrats should be working together to address these problems.  Alas, in a divided America, each side blames and undercuts the other.  No one is winning—neither the American people (be they Republican, Democrat, or Independent), nor the country itself.