What is a recession? This is the latest debate raging in Washington and on Wall Street after the White House attempted to redefine the economic term and Press Secretary Karine Jean-Pierre refused to provide reporters with a definition. With the consensus that the United States is on the cusp of a downturn, President Joe Biden and his economic team are front-running the potential second-quarter damage. Much like the public discourse surrounding the meaning of a woman, the administration is trying to make one of the simplest terms confusing. Is this by design or incompetence? Either way, the public is not likely to buy what the Democrats are selling.
What Is a Recession Anyway?
A recession’s standard and technical definition is two consecutive quarters of negative economic growth. The Bureau of Economic Analysis (BEA) combs through multiple data points to determine the gross domestic product (GDP). Some of these include the price index for gross domestic purchases, disposable personal income, real gross output, non-residential fixed investment, and profits from current production. When the BEA combines these figures, the quarterly GDP print is realized.
However, as Liberty Nation recently reported, White House officials do not believe the GDP tells the entire story. Instead, the economic minds working at 1600 Pennsylvania Ave. prefer to cite other numbers that perhaps shine a positive light on the situation, including the labor market, industrial production, wholesale retail sales, and real consumer spending. These measurements, the administration contends, determine how strong conditions may be today.
Of course, heading into every GDP report, market analysts and investors will study a broad array of other indicators and predictors to determine the overall performance. Today, thanks to a treasure trove of data in every sector of the economy, it is easy to calculate if things are good or bad. For instance, news consumers might read about the Conference Board Consumer Confidence Index (CCI), which monitors consumer attitudes, buying intentions, vacation plans, and future expectations. In July, the CCI fell 2.7 points to 95.7.
Financial markets will also pay attention to the wide range of purchasing managers’ indexes (PMIs). These provide insight into the general direction of economic trends in the manufacturing and service sectors. The S&P Global US Manufacturing, Services, and Composite PMIs eased considerably in July. This prompted Chris William, the chief business economist at S&P Global Market Intelligence, to make this declaration: “Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis … ” The Institute of Supply Management’s (ISM) Manufacturing and Non-Manufacturing PMIs are also crucial for economists. They eased to 53 and 55.3, respectively, in June.
The two headline numbers – the annual consumer price index (CPI) and monthly jobs report – are also closely watched to gauge where the economy is going and how the central bank will respond or act.
Is the US Headed for a Recession?
The Federal Reserve Bank of Atlanta’s GDPNow model, which emulates the BEA’s calculations, suggests that the second-quarter GDP will contract by 1.6%. This is a reliable estimate as it is off only a few percentage points (+/-). But the administration argues that other numbers suggest a different situation for the world’s largest economy. Are these showing an expansionary market? It is mixed.
Industrial output fell 0.2% in June, the labor market added a better-than-expected 372,000, real personal consumption expenditures dropped 0.4% in May, and growth in wholesale retail sales eased month-over-month in May.
“I think it’s still just a game of semantics. The trajectory of the economy is clearly lower, whether we’re going to define it as [a recession] or not,” said Peter Boockvar, chief investment officer at the Bleakley Advisory Group, in an interview with CNBC. “If anything, the third quarter is going to show further weakness. So you could have three quarters in a row of contraction for GDP. Does that technically mean we’re in a recession?”
Indeed, as the administration prefers to state nowadays: They are lagging indicators and backward-looking metrics. But the July numbers, which are also vital for economists judging the state of the country, are not looking too great right now, either. The Chicago Fed Bank National Activity Index remained at -0.19, the Dallas Fed Manufacturing Index deteriorated to -22.6, the Richmond Fed Bank Manufacturing Index was flat, and the Dallas Fed Bank Services index was paralyzed in subzero territory.
Suffice it to say, if the United States is not in the middle of a recession now, it will most likely face an economic downturn next year. A recent CNBC Fed survey of economists reports that 63% aver that the central bank’s tightening crusade will trigger a recession within the next 12 months. In addition, many Wall Street firms have downgraded their outlooks, rewriting their notes to add recession baseline scenarios.
Don’t Like It? Change It
Former President George W. Bush famously said, “If it feels good, do it. If they don’t like it, blame somebody else.” This is the incumbent administration’s mantra. The president and his Democrat foot soldiers enjoyed a great deal of euphoria when they approved trillions of dollars in deficit-financed spending. As a result, the United States contracted a bout of inflation. But Biden abandoned any culpability and passed the buck to everyone else. Troubled economic times are looming for America, but the president does not think so because he has a different definition when asked what is a recession. Once the financial crisis invades the United States, he will search for scapegoats, be it the Federal Reserve or some other bogeyman. When Bushisms meet Bidenomics, the outlook is never rosy.