After 2 Consecutive Quarters of Negative Economic Growth, Is America in a Recession?

Economic reality cannot be denied—but can it be redefined?

That's what the Biden administration is about to find out, following the release on Thursday morning of a report from the Bureau of Economic Analysis (BEA) showing that the United States has endured back-to-back quarters of negative economic growth—a situation that meets the standard definition of a recession.

According to the BEA's assessment, the country's economic growth slipped to an annualized rate of -0.9 percent in the second quarter of the year (which ended on June 30). That comes on the heels of a -1.6 percent growth rate in the first quarter of the year. The fact that the economy shrunk less in the second quarter than in the first is a hopeful sign (at least things aren't getting worse at a faster rate), but the combination of high inflation, a cooling housing market, and business inventory issues is clearly taking its toll.

And after back-to-back quarters in the red, the country has hit the "commonly used definition of a recession," as The Wall Street Journal put it Thursday.

But the White House has spent the past week or so laying the groundwork for a novel argument about this recession: What if it simply isn't happening?

"Two consecutive quarters" of negative growth is "not the definition of a recession," claimed White House Press Secretary Karine Jean-Pierre earlier this week, during a verbal sparring match with a reporter. That came after Treasury Secretary Janet Yellen appeared on NBC's Meet The Press last weekend to declare that "this is not an economy that is in recession."

And even Larry Summers, former President Barack Obama's treasury secretary who has become something of a nemesis for the Biden administration after correctly predicting that inflation would take off this year, has joined the chorus. On Monday, Summers told CNN's Don Lemon that "the overwhelming weight of the evidence is that we are not in [a] recession now. The negative GDP is, in a sense, misleading"—though he added that a recession is likely still on the way due to the "overheating" economy.

Some of the murkiness and confusion have to do with the backward-looking nature of the economic data that we have no choice but to use. If you take the BEA's assessment as true, it means the country has been in a recession for as long as six months now—but you never know that a recession has started until it is well underway and, for the same reason, you never know that it is over until months after it's technically done.

It will take even longer to get an authoritative answer from the National Bureau of Economic Research (NBER), a private group that is as close to an official arbiter of recessions as America has. (The NBER's definition of a recession takes into account monthly indicators like employment, personal income, and industrial production along with quarterly GDP growth, and two consecutive quarters of negative GDP growth often, but not always, correspond with an official recession.)

But politics demands an answer now—there's a midterm election coming up, after all. That's the main reason why the White House and its allies are spending so much time arguing that we're not in a recession, and why others are so keen to apply the label.

While the overall economic picture is obviously negative, the White House and its allies are right that other signals are mixed. Brian Deese, director of the White House's National Economic Council, argued during a press conference on Wednesday that consumer spending "remains solid" and other indicators of a recession like credit stress and falling industrial output are not materializing. And the economy continued adding jobs throughout the second quarter, he noted, with the unemployment rate holding steady at 3.6 percent in recent months—hardly a number that normally rings the alarm bells.

Clearly, this recession (if we can call it that) is an unusual one. Perhaps that's to be expected. After all, the country is climbing down from two years of stratospherically high deficits that powered previously unseen levels of government spending that overcooked the economy while the COVID-19 pandemic choked supply chains. The whole situation was unprecedented, and so it's hard to know exactly how the final stages will play out.

So…does it matter what we call it?

"The recession obsession is bizarre," wrote Bloomberg journalist and podcaster Joe Weisenthal on Twitter earlier this week. "The economy is what it is. Inflation is way too high. The labor market in the first half grew quite rapidly. Real wage growth is negative. There are signs of cooling. What additional info is revealed by designating it a recession or not?"

Weisenthal has a point in the sense that it's basically impossible to collate all the various and often-conflicting, always-lagging data about an impossibly complex and ever-changing economic system into a simple binary of "recession" or "not recession."

This is, essentially, the game that the White House wants us to be playing. If you're mulling postmodern questions about the basic definitions—what does any word mean except the thing we all agree that it means, man—then you've already tacitly accepted that it's possible this time is different. Maybe this time two consecutive quarters of negative growth isn't really a recession.

For Veronique de Rugy, the Reason contributor and George Mason University economist, a recession is a lot like a common law marriage.

"When everyone considers someone to be married, even if they aren't officially married, then eventually that carries the legal weight of an actual marriage," says de Rugy.  The same is true about the definition of a recession, she adds, referring to the commonly understood classification of two consecutive quarters of negative growth. "Everyone has been using [that definition] for so long that it acts as a formal definition."

Admittedly, libertarians are always going to be tempted to accept the emergent order explanation. But I think we can take this line of thought one step farther. A recession isn't a recession merely because a collection of economic experts have unofficially created a formal definition of one. The real test of the White House's this-is-not-a-recession messaging strategy is whether actual people believe it.

Most of them don't. An Investor's Business Daily poll released earlier this month found that 58 percent of Americans believe the country is in a recession, up from 48 percent just two months ago. A CNN poll released the same week found worse numbers: 64 percent of Americans say the country is in a recession, including 56 percent of self-identified Democrats.

Deese and Summers can call it whatever they want, and the academic debate among economists is interesting to some degree. For the purposes of politics, however, the power to declare recessions as happening or not doesn't really reside with the White House, the front pages of The Wall Street Journal, or even the National Bureau of Economic Research.

Are we in a recession? You tell me.