Is the U.S. in a Recession? What 5 Charts Can Tell Us

The U.S. just registered two consecutive quarters of “negative growth” – an awkward phrase that means output as measured by Gross Domestic Product (GDP) shrank (I only wish my waist would exhibit “negative growth”!). Q1 GDP was down 1.6% quarter-on-quarter at a seasonally adjusted annualized rate (SAAR), meaning it was down 0.4% qoq and if that had continued for a year at that pace, it would’ve been down 1.6%. Thursday we learned that Q2 GDP was down 0.9% qoq SAAR, or -0.2% qoq. According to the generally accepted rule-of-thumb, two consecutive quarters of contracting GDP is a recession. That means the US is now in recession, right?

Not exactly. While that’s the informal “rule of thumb” that a lot of commentators use, it’s not how it’s officially determined. The task of determining recessions falls to the National Bureau of Economic Research (NBER), an independent organization supported by grants from government agencies, private foundations, and companies. It’s governed by a Board of Directors consisting of 51 members from leading North American research universities, economics professional organizations, and the business and labor communities. It’s apolitical; it conducts research but does not make policy recommendations or carry out advocacy on the basis of research findings. It has a nearly infinite number of programs, projects, working groups, etc. etc. and publishes more papers than you can shake a stick at.

The NBER is best known among the general public (if at all) for its Business Cycle Dating Committee. This is a committee of eight economists that decides in retrospect the peaks and troughs of the U.S. economy. It defines a recession as “the period between a peak of economic activity and its subsequent trough, or lowest point.” That is, when the economy is not expanding, it’s considered to be in recession.

How do they define a recession? “The NBER's definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria—depth, diffusion, and duration—as somewhat interchangeable.”’

What criteria do they use specifically?

“Because a recession must influence the economy broadly and not be confined to one sector, the committee emphasizes economy-wide measures of economic activity…These include real personal income less transfers, nonfarm payroll employment, employment as measured by the household survey, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, and industrial production. There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions.”

In other words, they don’t use any formal definition of a recession – just “we’ll know it when we see it.”

Let’s look at the measures that they specify and see how they’re faring.

Personal income excluding current transfers: up 1.8% year-on-year. No sign of a recession here.

Employment: still going up. Nope, no recession here either.

Real personal consumption expenditure: growing by 2.1% yoy. The May figure (the latest) was a bit lower than April, which was peak ($13.895bn vs $13.95bn) but this doesn’t look like a recession either.

Real wholesale and retail sales: Now we’re getting somewhere! Real retail sales have indeed turned negative. The first hint of a recession! Although real wholesale sales are still up 3.8% yoy.

Industrial production: up 4.2% yoy in the latest month. Nothing to see here either.

In short, while U.S. GDP may have fallen for two consecutive quarters, there’s almost no sign that the U.S. is even approaching a recession much less in one. The NBER’s committee said that “In recent decades, the two measures we have put the most weight on are real personal income less transfers and nonfarm payroll employment.” Those two measures are certainly not showing any signs of a recession.

While some people – notably those aiming to besmirch the Biden administration – will try to paint the U.S. as in recession due to two consecutive quarters of contracting GDP, it’s highly improbable that this period will be formally labeled a recession. That’s not to say we won’t have one in the future, and sometime soon even, just that it’s not happening now.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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