Negative growth for two successive quarters is a recession. With 9.1% inflation, we are currently experiencing stagflation too.
The Bureau of Labor Statistics just released its first estimate for gross domestic product (GDP) growth in the second quarter. The number was -0.9%. That is the second consecutive quarter of negative GDP growth. That means the country is officially, according to the textbook economics definition, in a recession.
Actually, that may not be exactly right.
Although the data fits the classic definition, the government decided that an independent agency, the National Bureau of Economic Research (NBER) should make the official determination. It may take some time, up to a year, to declare a recession.
The NBER considers other factors, like unemployment, when officially declaring a recession. Economists, there are likely to say that since unemployment is under 4%, we are not in a recession.
Textbook Definition of a Recession
Nonetheless, as an economist in my own right, I say that since the last two quarters indicate the economy is shrinking, we are in a recession. The NBER defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
For the last six months, economic activity has declined significantly. That is a recession.
This may be the first time in history that the economy is in recession while experiencing a severe labor shortage fueling high employment. This shortage has led to an unemployment rate way below the traditional full employment level. There are currently more than 11 million job openings and less than 6 million unemployed Americans.
This time, instead of unemployment rising significantly, which happens during other recessions, the unemployment rate will rise only modestly. Instead, the number of job openings will fall rapidly. That means companies that are having trouble hiring will simply stop seeking new workers.
As I warned in an April Newsmax Finance column, stagflation was coming and would persist through most of 2022.