The United States is not officially in a recession until it’s called by the National Bureau of Economic Research (NBER).
That’s according to Tennessee Tech College of Business Dean Thomas Payne. He said confusion comes from the textbook definition of recession, which states that recession occurs with two-quarters of negative economic growth. The past two quarters have seen a growth of -1.6 and -.6.
“Every time since 1948 that GDP has fallen for at least two quarters, the NBER has called a recession,” Payne said. “The only difference this time I think is that those negative numbers that we’re seeing -1.6, -.6, around 0, is that they’re so small of a negative.”
In addition to the GDP, Payne said the NBER also takes other factors into consideration, including employment, inflation, and industrial production. He said in order to take all of those factors into account, in some instances the NBER has called a recession after we’ve already come out of one.
Payne said one of the issues when it comes to recession is the impact it has on behavioral economics. He said when people believe the economy has a possibility of a downward turn, they can become more conservative in their spending. He said this behavior can become self-fulfilling.
“I do believe that if we’re not in a recession right now, we have a very good chance or some might say a very bad chance of entering into recession in the coming months,” Payne said. “I will say too, this is not unusual for the Bureau of Economics to be so delayed. In fact, it typically takes six to eight months for them to analyze the data.”
Payne said we know that the economy has slowed down, inflation is too high, and employment is a lagging indicator of how well the economy is doing.
So what should we be looking for?
“Consumer spending, housing starts, those seem to be slowing down,” Payne said. “Not surprisingly because we’ve seen what’s happened with housing prices during the pandemic last year or so certainly, and we’ve seen what we’ve seen what’s happened to interest rates recently as the Federal Reserve has tried to fight inflation.”
Payne said the problem right now is that some of the things the Fed is trying to do to tamp down inflation, could actually be driving the country further towards recession because of higher inflation rates. He said once we have inflation under control, then the Fed can start turning its attention back to economic growth, financial stability, and stimulating inflation.
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