To absolutely no one’s surprise, second quarter Gross Domestic Product figures came in showing real economic contraction. From The Wall Street Journal:
U.S. GDP Fell at 0.9% Annual Rate in Second Quarter
The economy contracted after shrinking earlier in the year, held back by rising inflation and interest rates—marking a recession in many eyes
by Harriet Torry | Thursday, July 28, 2022 | 8:47 AM EDT
The U.S. economy shrank for a second quarter in a row—a common definition of recession—as businesses trimmed their inventories, the housing market buckled under rising interest rates, and high inflation took steam out of consumer spending.
Gross domestic product, a broad measure of the goods and services produced across the economy, fell at an inflation and seasonally adjusted annual rate of 0.9% in the second quarter, the Commerce Department said Thursday. That marked a deterioration from the 1.6% rate of contraction recorded in the first three months of 2022.
The report indicated the economy met a commonly used definition of recession—two straight quarters of declining economic output.
The official arbiter of recessions in the U.S. is the National Bureau of Economic Research, which defines one as a significant decline in economic activity, spread across the economy for more than a few months. Its Business Cycle Dating Committee considers factors including employment, output, retail sales, and household income — and it usually doesn’t make a recession determination until long after the fact.
The GDP report offered some discouraging signs, and underscored the challenges facing U.S. businesses, consumers and policy makers—including high inflation, weakening consumer sentiment and supply-chain volatility.
Emphasis mine.
So, the Biden Administration, eager as it is to use a subjective rather than objective measure of inflation, gets some political cover from the National Bureau of Economic Research, a private organization headquartered in — drum roll, please! — Cambridge, Massachusetts.
In September 2010, after a conference call with its Business Cycle Dating Committee, the NBER declared that the Great Recession in the United States had officially ended in 2009 and lasted from December 2007 to June 2009. In response, a number of newspapers wrote that the majority of Americans did not believe the recession was over, mainly because they were still struggling and because the country still faced high unemployment. However, the NBER release had noted that “In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle.”
So, the eight economists who decide if the U.S. is in a recession using these markers declared that the 2007-2009 “Great Recession” ended 15 months after they saw the signs that it did. That’s the political cover the Biden Administration believe will take them through November 8th, election day.
But it won’t work. With a 9.1% annualized inflation rate in June, Americans don’t need dry statistics to tell them when we’re in a recession; they can feel it, in their wallets, and in their bones.
The Federal Reserve’s Board of Governors raised their base interest rates another 0.75% just yesterday, in an attempt to fight the high inflation rate, and signaled that another rate hike would probably occur.
The very low unemployment rate is what is giving the Democrats hope that this isn’t a ‘real’ recession.
Inflation matters a lot when thinking about GDP—exclude it from the Q2 figures and the economy grew at a 7.8% annual rate.
The fact that nominal growth was wiped out entirely by inflation helps to explain why voters are so angry and unhappy.
— Josh Boak (@joshboak) July 28, 2022
GDP is measured in dollars, and spending increased across the board, as it does almost every quarter. That’s why inflation is calculated in, to keep spending numbers from obscuring actual economic growth. Yes, inflation completely wiped out the growth in spending, but there’s more to it than just that: while inflation was 9.1% in June, wage growth was much smaller, 5.1%. Consumers spent more, but their wages did not keep up with what they had to spend; the average American is poorer, in real terms, than he was a year ago.
Bidenomics has been a disaster for Americans, but, not to worry, at least he’s not sending out any mean tweets!