As the reality draws near that the Biden administration has driven the American economy into recession amid surging inflation, the White House is working in advance to redefine the meaning of the term.
A recession has been traditionally defined as two consecutive quarters of negative growth in the U.S. Gross Domestic Product (GDP). The GDP for the first quarter of 2022 shrank by 1.6% and the report for the second quarter GDP is set to be released on Thursday.
Estimates for second quarter GDP have varied widely, with a Bloomberg survey of economists predicting slow but positive growth at 0.9%. However, the GDPNow model developed by the Atlanta Federal Reserve Bank is expecting another quarter of shrinkage, at the same dismal negative rate of -1.6%.
Meanwhile, the Fed is meeting this week to discuss how much to bump up interest rates to battle the red-hot inflation hammering the nation. June’s inflation number showed a 9.1% annual increase in the Consumer Price Index (CPI), with most core consumer goods running even higher.
Capital One CEO Richard Fairbank told reporters last week that the combination of continuing inflation and higher interest rates could quickly “erode the excess savings consumers accumulated through the pandemic.” He said that problem will be aggravated further if prices continue to surge ahead of wage growth.
Anticipating a poor GDP report, the White House has published a handout declaring that two consecutive quarters of negative growth does not actually mean the economy is in recession.
The handout says that six months of negative growth is not “the way economists evaluate the state of the business cycle.” It says that economists must take a “holistic look at the data,” apparently claiming that some unknown mixture of data from the labor market, consumer spending, industrial production, and income must be calculated in some fashion.
Based on the vague new way of describing what a recession actually is, the White House not surprisingly predicted that it will be “unlikely” that economists will find we are in one, regardless of the GDP report.
The statement goes on to make the rather astounding prediction that there is “a good chance that the strength of the labor market and of consumer balance sheets help the economy transition from the rapid growth of the last year to steadier and more stable growth.”
Regardless of the Biden administration’s dismissal of defining a recession as two consecutive quarters of contraction, the fact is that every recorded U.S. recession in the Federal Reserve era has included at least two such quarters.