It is official. The US GDP contracted in the second quarter, meaning that the economy is in a technical recession. Now that the advance estimate confirms a nation on the decline, it makes perfect sense why the White House was in full damage control ahead of the April-June gross domestic product data. So, what did the numbers reveal in the previous quarter?
US GDP Numbers Are Out
The GDP growth rate was -0.9%, according to the Bureau of Economic Analysis (BEA). The market had penciled in an expansion of 0.5%, with estimates from economists and market analysts ranging from -1.6% to as much as 1.2%. With the economy contracting 1.6% in the first quarter, two straight quarters of contraction marks a recession. In addition, the GDP Price Index climbed 8.9% in the second quarter, higher than the median forecast of 7.9%. This is up from the 8.3% increase in the first quarter. GDP sales edged up 1.1%. The BEA is poised to release two more GDP estimates this summer, so it is possible that the economy may still avert a recession. However, based on the history of revisions, the changes are mostly negligible.
Much Ado About Nothing?
No matter what the BEA would have reported, the administration and its advocates in the mainstream media were always going to dismiss the numbers. Unless, of course, economic growth was above 2%.
While the White House’s attempts at redefining what a recession means are comical and perhaps expected, it is even more laughable to see the top economic minds in the country emulate this same approach. Case in point, Keynesian economist and New York Times columnist Paul Krugman, who has unsurprisingly adopted the establishment viewpoint of much ado about nothing, despite recently admitting that he got it so wrong on inflation.
“Ignore the two-quarter rule. We might have a recession, but we aren’t in one now,” he wrote. “If GDP is negative, there will be a firestorm of demands that Biden/NBER declare a recession, and claims that they’re moving goalposts if they don’t. (They won’t be.) If it’s positive, expect many claims about cooked books.”
Politico joined the fun, tweeting that if the GDP does highlight a contraction in the April-June period, it would be “possibly inaccurate and certain to be revised.” The publication’s Ben White also purported on Twitter that two straight quarters of shrinking GDP “would not show the economy is currently in recession.” What made this remark befuddling is that he used this definition in March 2020.
Let’s face it: This is all about politics and protecting President Joe Biden and the Democratic agenda. The proof can be found in National Economic Council (NEC) Director Brian Deese and the contrast in his comments from 2008 and most recently. During a White House press briefing on July 26, Deese asserted that “two negative quarters of GDP growth is not the technical definition of recession.” However, in 2008, Deese possessed a different understanding: “Economists have a technical definition of recession, which is two consecutive quarters of negative growth.”
Third Quarter and Beyond
Whether the second quarter showed contraction or expansion, Wall Street and economists were still anticipating poor economic performances in the coming months and years. As a result, many investment firms, financial institutions, and market strategists have downgraded their outlooks. The prognostications range from full panic mode to barely treading above water. The economic data, including many of the metrics the White House refers to regularly, spotlight a slowing economy, something the White House and the central bank concede. Even the sizzling labor market, which is alluded to as evidence that the US is not in a recession or pre-recession, is cooling off.
The July numbers are beginning to roll in, and they are not painting a pretty picture of the world’s largest economy just yet. The IBD/TIPP Economic Optimism Index remains in subzero territory, regional Fed surveys are in contraction mode, and the recent S&P Global US purchasing managers’ index (PMI) readings weakened considerably. Everyone will need to brace themselves as the narratives will be written, the analyses will defy conventions, and the economy will continue to get weirder.