Two Bad Quarters Do Not a Recession Make?

Economic savants spell out why not to get excited by the back-to-back negative numbers.

Yikes. Now we have two quarters in a row of shrinkage in the gross domestic product. That has long spelled a recession.


But economists and investment strategists were quick to point out Thursday, as the GDP news broke, the two-quarters standard is a very rough rule of thumb and is insufficient to signal a downturn. GDP fell at a 0.9% annual rate in the June-ending quarter, following the March-ending quarter’s 1.6% slide.


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Indeed, the National Bureau of Economic Research’s business cycle dating committee is the decider of when a recession is here. In addition to GDP, which may fluctuate due to exogenous factors, the NBER panel weighs a welter of other metrics, such as employment trends and consumer outlays.


Reasons to doubt that the GDP decreases in the first and second quarters mean a recession is upon us now:


One-time statistical quirks. In an investor note, Cliff Hodge, CIO for Cornerstone Wealth, blamed the first quarter’s drop to an import surge that ballooned the trade deficit, which offset domestic economic growth. In the second period, he went on, “a slowdown in inventory accumulation tipped GDP growth into the red.” As a result, he said, “it’s really difficult to call what we’re experiencing right now a recession.”


Jobs. Bill Adams, chief economist for Comerica Bank, wrote that “with solid job growth in the first half of the year, the economy didn’t look like it was in a recession.” Total nonfarm payroll employment increased by 372,000 in June, and the jobless rate remained at 3.6%.


Consumers. They are still opening their wallets to buy stuff.We are not in recession,” said by Jeffrey Roach, chief economist for LPL Financial. “Consumer spending was too strong to raise any recession signals.” Consumer expenditures have risen continuously this year, with the last monthly rise slower than earlier in 2022 but still positive (0.2% in May, versus 0.6% in April).

All that said, no one denies that high inflation, the Ukraine war and all of the rest of humanity’s afflictions lately won’t take a toll up ahead. As Comerica’s Adams put the matter, While it seems inaccurate to think of the first half of the year as a recession, the outlook for the second half and into 2023 is dicier.”