President Joe Biden stated that the economic data overall “doesn’t sound like a recession” despite the US Commerce Department’s announcement that the country’s gross domestic product had declined for the second consecutive quarter.
Most nations define a recession as two consecutive quarters of GDP contraction; however, in the United States, the Business Cycle Dating Committee, an independent group of eight economists, determines whether or not a recession has occurred.economists
The largest economy in the world’s GDP shrank by 0.9 percent on an annualized basis in the most recent quarter, the Commerce Department reported on Thursday. This would lead the government of many nations to declare that a recession had begun in the economy. however, not in the US.
Shortly after the Commerce Department report was released, President Joe Biden told reporters that the new data “doesn’t sound like a recession to me” because of low unemployment and strong job growth.
For France, for instance, the same GDP figures would be sufficient to declare a recession. A recession is defined as “a decline in Gross Domestic Product over at least two consecutive quarters” by the National Institute of Statistics and Economic Studies (INSEE) of the nation. The same definition is used by the Organization for Economic Cooperation and Development (OECD).
On Thursday, Biden and senior White House officials emphasised a number of positive aspects of the US economy, such as the fact that businesses are still hiring, the unemployment rate is at a 50-year low, and businesses are still making investments.economists
Eight economists
Japan is the only other democratic country that does not follow the OECD definition of a recession. There, the Japanese government “is the referee, but the government departs from the automatic two-quarter rule and considers other indicators” such as employment or consumption, said Harvard economist Jeffrey Frankel in a 2019 talk on the American economic exception.
In Japan, the democratically elected government calls the shots. But in the US, the arbiters of recession are just eight economists who form an independent group called the Business Cycle Dating Committee, part of the National Bureau of Economic Research (NBER).economists
According to the NBER, a recession is defined as “a significant decline in economic activity that is spread across the economy and lasts for more than a few months.” Therefore, the committee takes into account a variety of factors, including the unemployment rate, wage levels, and investment.
These judges not only decide whether the US economy is in a recession, but they also have the authority to declare one to be over.economists
a politically touchy subject
The economy is always a very delicate political subject in Washington, especially since voter concerns about it may cost Biden’s fellow Democrats the midterm elections in November.
In both the House of Representatives and the Senate, Democrats currently hold a narrow majority. The midterm elections, however, could be disastrous for the party if history is any indication — just as they were during the first terms of Democratic former presidents Bill Clinton and Barack Obama.
Republicans and conservative political commentators are holding Biden responsible for the state of the economy by pointing to declining GDP figures, rising prices, and a slowing housing market. According to Reuters/Ipsos polling, the economy has a 36 percent approval rating for the president, a record low.economists
Biden heard conflicting accounts of the US economy even in a meeting with people chosen by the White House. Wendell Weeks, CEO of materials science company Corning, said to Biden that the company’s sales to television and computer manufacturers indicate a slowdown in consumer spending.
Although domestic demand has continued to increase, US job growth in the first half of the year averaged 456,700 per month. Initial claims for state unemployment benefits slightly decreased, according to Labor Department data released on Thursday.
According to Federal Reserve Chair Jerome Powell, “It doesn’t make sense that the economy could be in a recession with this kind of thing happening.”
A laissez-faire executive and a socialist economist
According to the US business magazine Forbes, the American exception to the rule regarding recession detection dates back to the immediate aftermath of World War I and the unlikely friendship between Nachum Stone, a socialist economist, and Malcolm Rorty, a chief statistician at the American Telephone and Telegraph Company (AT&T), who was renowned for his laissez-faire philosophy.
The only economic concept on which the two could agree was that the US needed a body that could establish some undisputed facts as a foundation for economic discussion.
Thus, the NBER was established in 1920 as a standalone organisation with the mission of bringing the best minds in the field of economics together to find solutions to urgent problems like how to measure growth rate.
