WASHINGTON — For about a month, Republicans have been insisting that the U.S. economy is in a recession, a time of reduced economic activity that can be politically devastating for the ruling party.
Then, on Friday, the US Department of Labor announced that the economy had created half a million jobs last month, pushing the national unemployment rate down to 3.5% – nearly the lowest on record, and a strong indication that the economy is not, in fact, in a recession.
Still, Republicans insisted at a press conference on Friday, where they criticized plans by Democrats to pass a major domestic policy bill, that there was a recession underway.
“We are in a recession and that [bill] going to make it worse,” said Sen. Lindsey Graham (RS.C.).
HuffPost asked the five Republican senators at presser how July’s job growth might perform in a recession. Sen. Bill Cassidy (R-La.) pointed out that in the first and second quarters of the year, the United States experienced negative gross domestic product growth, an important economic measure.
“The definition of a recession is negative GDP growth in two successive quarters,” Cassidy said.
Cassidy is right: if you do a Google search for the definition of the word “recession”, the best dictionary result calls it “a period of temporary economic decline during which commercial and industrial activity is reduced, usually identified by a decline in GDP in two successive quarters”.
But economists don’t use a simple rule of thumb to determine when the economy is in a recession ― they follow the determinations of the National Bureau of Economic Research, a private, nonprofit organization that has served as a guardian of the ups and downs of the economic cycle since the 1960s.
The NBER describes a recession as “a significant drop in economic activity” that spreads across industries. Quarterly GDP is one factor, but the most important measures are personal income and wage employment. These measures both show growth.
In a “Frequently Asked Questions” page on its website, the NBER explicitly rejects the two-quarter definition, stating that “GDP could decline by relatively small amounts in two consecutive quarters without warranting the determination” that economic activity peaked and began to decline. The GDP readings this year has posted modest declines for somewhat technical reasons, such as declining private investment in inventory by companies.
A tricky thing about the recession debate is that the determination of the recession comes months after the fact, following revisions to the government’s various monthly reports on jobs, incomes, consumer spending and manufacturing. So even after a recession begins, there is no official statement until later.
Now, just because there’s strong job growth doesn’t mean people should be happy with the economy. Consumer prices rose at the fastest pace in decades, including a 9.1% rate in June. Consumers are particularly shaken by the volatility of food and gasoline prices, and consumer confidence, as measured by polls, is remarkably weak. Polls also show voters think the economy is in a recession and Republicans want those voters on their side.
“I’m very happy that we have strong job growth, but we’re in a recession,” Cassidy said.
At the same time, some of the voters who tell pollsters they think the economy is in a recession might say so because they’ve heard Republicans say it so many times on TV. Since a bad economy could benefit Republicans in the November election, they have an incentive to paint as dire a picture as possible, and less incentive to present a more nuanced and truthful picture.
What’s weird is that Republicans are exaggerating the economic problems when the public already doesn’t like what’s going on at all. And there is a real risk of a recession around the corner, with the Federal Reserve raising interest rates in order to bring down inflation.
Sen. Roger Marshall (R-Kan.) offered his own measure of recession: “For me, recession is when I come home and the community bankers say, ‘Hey, Doc, what’s up? what is happening ? Business slows down. Why are people afraid to invest? »
Sen. John Barrasso (R-Wyo.) noted that labor force participation numbers are still below pre-pandemic levels. “And if you talk to families, they find it harder and harder to follow,” he said.
Graham suggested that questioning his economic analysis amounted to media bias against Republicans. “If a Republican was in charge, you wouldn’t be asking that question,” he said.
Graham, in particular, should know that the economic data does not point unequivocally to recession. In response to a question from the South Carolina Republican this week, the head of the Congressional Budget Office – an economist named Phillip Swagel – told him it was too early to say there is a recession.
“It is possible that, in retrospect, it will become clear that the economy has entered a recession this year,” Swagel wrote. “However, this is not clear from the data available in early August.”
The Huffington Gt