How is it measured and who declares an economic recession in the US?

The US economy has shrunk for two consecutive quarters, and while that’s technically a measure that the country has entered a recession, economists aren’t so sure now.

During a recession, the economic activity of a country contracts and that is what has happened in the US in the first half, where the annualized rate of Gross Domestic Product fell by 0.9% from January to March and 1, 6% from April to June.

However, in that same period, the labor sector added 2.7 million jobs, more than in many years before the pandemic, and unemployment fell to 3.6%, close to the lows of 50 years ago.

These indicators are not consistent with a recession.

Why do you think then that there is a recession?

Because in reality, things are different. The highest inflation in four decades is eroding the purchasing power of Americans, especially the poor, due to rising food, rent and gasoline prices.

To counteract it, the Federal Reserve has begun to increase interest rates, because inflation occurs when there is a demand greater than supply, and the idea is to extract an excess of circulating money.

Many economists, including the president of the Federal Reserve (Fed), Jerome Powell, do not believe that the economy is in recession, others expect the outlook to worsen in the second half of the year and in 2023.

How then is a recession measured?

Let’s go back to the two consecutive quarters of slowdown.

In 2001, GDP fell in the first three months of the year, rebounded in the following three, and contracted again in the third quarter.

Although the two quarters of contraction were not consecutive, the situation was defined as a recession because industrial production fell and unemployment increased.

And the recession caused by the pandemic in 2020 lasted only two months, March and April, economists later determined, but that period influenced the fall in GDP in two consecutive quarters.

In other words, not everything is so simple.

Who decides that a recession has begun?

That responsibility rests with a panel of economists convened by the National Bureau of Economic Research, and is sometimes determined up to a year after the recession hit.

This private nonprofit group defines a recession as “a significant decline in economic activity that spreads throughout the economy and lasts more than a few months.”

The panel analyzes all the indicators and sometimes the situation is irregular.

For example, during the pandemic, the massive loss of more than 20 million jobs did not balance rapidly rebounding growth, and the group officially called the situation a recession in early June, shortly before the end of the second quarter.

What can we expect?

The fact that economic indicators are revised upwards or downwards months later confuses forecasts and expectations. Many economists expect the 1.6% contraction in the first quarter of this year to be revised to positive later in the year.

For now, the Fed’s moves, which have doubled interest rates on mortgages from a year earlier, are causing fewer home sales and slowing construction.

Higher interest rates will also likely affect many companies’ investments in plant, machinery and other equipment. If companies reduce expenses and investments, they will also hire fewer employees. Consequently, consumers will also reduce their spending.

Powell is confident of a “soft landing,” in which the economy weakens enough to reduce hiring and increase wages without causing a recession and manages to reduce inflation to the Fed’s historical level of 2%.

However, it also recognizes the difficulties in achieving that goal, even more so in the face of Russia’s invasion of Ukraine and COVID-19 lockdowns in China that have increased the prices of food and energy, and of many spare parts made in China. USA.

[Con información de Associated Press y Reuters]

Connect with the Voice of America! Subscribe to our channel Youtube and turn on notifications, or follow us on social media: Facebook, Twitter and Instagram.