There was a great debate last week over whether the U.S. economy was in a recession. Gross Domestic Product (GDP), or the total final value of all goods and services produced in the economy, fell by 0.9%. This was the second consecutive quarter of declining GDP after the first quarter contraction of 1.6%.
However, the United States does not define a recession as two consecutive quarters of declining GDP. Instead, a private group of economists at the National Bureau for Economic Research (NBER) determines recessions in the United States based on a “significant decline in economic activity spread across the economy, lasting more than a few months.” In other words, they take account of other economic data and variables than just GDP figures.
The main reason why many economists do not think the U.S. economy is in a recession is the strong labor market. Employment rose by 372,000 in June and unemployment remains low at 3.6%. Job openings remain high, although they have declined a little over the last two months. Industrial production, covering manufacturing, mining, and utilities, hit a historic high in May.
However, some leading indicators of the economy are weakening. Although unemployment remains low, unemployment insurance claims have started to rise and now number over a quarter of a million new claims per week. Personal consumption expenditures, which are part of the GDP calculations, increased by 1 percent in the second quarter with especially strong spending on services such as eating at restaurants and staying at hotels.
However, consumer confidence as measured by The Conference Board has fallen for three consecutive months. Consumers were less confident about the labor market, reporting jobs were less plentiful and harder to get.
So, although we are not technically in a recession, the economy is showing signs of slowing. This is no bad thing as it will help bring inflation down. Indeed, the Federal Reserve is trying to engineer a “soft” landing for the economy by raising interest rates without a crash landing.
