Is the U.S. in a recession? The committee that decides is looking at all the data
A MARTINEZ, HOST:
We learned last week that the main measure of economic growth, gross domestic product, contracted slightly in the second quarter, and it also contracted in the first quarter, which kind of is the traditional definition of a recession. But the White House recently said no. Even two quarters of declining GDP was, quote, "unlikely to qualify as a recession." All right. So what gives? Planet Money's Mary Childs joins us to unravel this mystery.
Mary, all right. So what is a recession?
MARY CHILDS, BYLINE: A recession is a period of more than a few months in which the economy is contracting. That colloquial definition of two quarters of declining GDP is not the formal definition 'cause there's actually a committee that decides - a group of eight economists that meet to demarcate when a downturn started or stopped.
MARTINEZ: A committee - all right. So tell us about the committee.
CHILDS: So it's the Business Cycle Dating Committee, and it's housed within the National Bureau of Economic Research.
I called up a former member, Harvard professor Ben Friedman, and I asked him why this group doesn't just use the two-quarters-of-shrinking-GDP rule.
BEN FRIEDMAN: If you had a question about your personal physical health, for example, and you went to the doctor, and the doctor said, well, Mary, we have taken your temperature. And your temperature is 98 point whatever, and that's the only thing it's worth looking at, I'm guessing you'd get another doctor very quickly.
CHILDS: I would, indeed.
FRIEDMAN: That just doesn't make any sense.
CHILDS: He also said that often those GDP figures get revised, sometimes revised substantially.
MARTINEZ: All right. Then what does the group look at then?
CHILDS: They look at measures of how people and businesses are doing, like personal income, employment, consumer spending, wholesale retail sales and industrial production. And many of those measures seem to be pointing to a slowdown but not necessarily a recession. Personal income and spending adjusted for inflation are still really high, though the most recent data don't look as good as they had. And unemployment is still near historic lows. So they're watching metrics like those to see how consumers in the economy are holding up amid all this inflation.
MARTINEZ: All right. So the business cycle dating committee hasn't yet said we're in a recession. But why not? I mean, what would it take for them to call this a recession?
CHILDS: The committee has a formal checklist - three qualifications that a downturn must satisfy to be a recession. Those are depth, diffusion and duration - how severe, how widespread and how long. And every recession will be heavier on one than the other. But they have to meet each to some degree. So far, whatever we're in hasn't yet checked all of those boxes. But even if we are in a recession, we may not get the label for a long time because the committee is not in a hurry. They're entirely uninterested in being timely. They're only interested in being right because the purpose of declaring a recession start and stop is to lay a solid foundation for research, to create a common language, an agreed-upon start and end date, so that future economists studying booms and busts can try to disentangle what caused a boom or a bust.
MARTINEZ: That's Planet Money's Mary Childs.
Mary, thanks for untangling for us.
CHILDS: Thanks for having me.
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