The White House is Redefining 'Recession' - Like Putting Lipstick on a Pig
[To put lipstick on a Pig means "making superficial or cosmetic changes to a product in a futile effort to disguise its fundamental failings" [Wikipedia. Lipstick on a pig. (Accessed July 28, 2022)].
If it walks like a duck and quacks like a duck, it must be a duck. Well... not necessarily if you listen to the Biden White House. The Administration's present attempt to assuage the American public relative to the state of the economy is laughable.
It has been quite a while since I attended college majoring in economics and political science (42 years since graduation to be precise) nonetheless until recently, the rule of thumb for defining a recession has been two consecutive quarters of negative Gross Domestic Product growth. Every macroeconomic text I know defines recession this way. Ok, so there's a bit of a caveat to this rule of thumb:
While two consecutive quarters of negative growth is often considered a recession, it's not an official definition. A nonprofit, non-partisan organization called the National Bureau of Economic Research determines when the U.S. economy is in a recession. An NBER committee made up of eight economists makes that determination and many factors go into that calculation.
[Gura, D. U.S. economy just had a 2nd quarter of negative growth. Is it in a recession?. (Accessed July 28, 2022)].
According to the White House:
The National Bureau of Economic Research (NBER) Business Cycle Dating Committee—the official recession scorekeeper—defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The variables the committee typically tracks include real personal income minus government transfers, employment, various forms of real consumer spending, and industrial production. Notably, there are no fixed rules or thresholds that trigger a determination of decline, although the committee does note that in recent decades, they have given more weight to real personal income less transfers and payroll employment.
[The White House. How Do Economists Determine Whether the Economy Is in a Recession?. (Accessed July 28, 2022)].
Even using the NBER assessment of a recession: 1) the last two quarters of negative GDP growth are significant; and, 2) at least where I went to school, six months in fact constitutes 'more than a few months' to satisfy NBER's time requirement.
What makes the Administration's assertions so hilarious is their continued reliance on the argument that 'there is no recession because the economic numbers can be revised up'. Here's a hint Mr. President, that which can be revised up can also be revised down. Yup, just another non-argument made in the attempt to make a failed Administration look good.
As well, for an additional laugh, rather disingenuously, the Administration hangs their hat on the little known and hardly used "Sahm Rule" to define recession:
In macroeconomics, the Sahm Rule, or Sahm Rule Recession Indicator, is a heuristic for determining when an economy has entered a recession. It is useful in real-time evaluation of the business cycle and relies on monthly unemployment data from the Bureau of Labor Statistics (BLS). It is named eponymously after former Federal Reserve and Council of Economic Advisors economist Claudia Sahm [...] Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months.
[Wikipedia. Sahm Rule. (Accessed July 29, 2022)].
Given the strength, albeit failing, in the employment sector, the White House has found itself a test to demonstrate the country is not in a recession. Right Mr. Biden et. al. let's utilize a little known test to prove our point rather than the textbook definition widely accepted. More lipstick for the Pig please!
So from the political prospective why is the White House so concerned over use of the term 'recession' to describe the present economy?
As the midterm elections approach, the White House is acutely aware of the optics of a country in recession, where Americans are struggling financially. But with the cost of so many things skyrocketing and inflation running at a multi-decade high, a lot of Americans are already taking it on the chin. A majority, or 65%, of registered voters who responded to a recent Morning Consult/Politico poll said they believe we are already in one.
[Gura, supra].
This disinformation continues:
'The American people are digesting a lot of information about the economy, and we're trying to inform the ongoing discussion about the state of the business cycle with concrete information about how important calls, like a recession, are made,' White House Council of Economic Advisers chair Cecilia Rouse told Axios. 'That's especially critical right now as some of the key factors in play, such as consumer spending and job growth, have maintained real strength through the first half of this year'.
[Schemmel, A. 'Not the technical definition': Biden admin doubles down on recession denial. (Accessed July 28, 2022)].
And let's not leave out:
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Nonetheless my friends, let's not avoid the reality that in fact, the U.S. economy is in slowdown mode. In an interview on July 11, 2022 (prior to the release of the quarterly GDP data), Kathy Jones, managing director and chief fixed income strategist for the Schwab Center for Financial Research, summarized the state of the economy as follows:
[...] as we've been looking at the data lately, I have to say, it looks like we're slowing down, if not skidding into recession. Looking at the PMI, the purchasing managers indices, one of the things we look at there is the difference between inventories and new orders. What we're seeing is new orders slowing down, inventories going up. That tells us that probably less production, less employment, et cetera. And just [inaudible] of housing obviously has slowed down considerably with the rising mortgage rates. Broadly speaking, financial conditions are much tighter than they were before. And depending on which measure you use into fairly like one standard deviation of tightening in a very short period of time. So I put all that together, along with where the market is pricing, what the Fed is going to do. And it tells me that the economy really is slowing down. Probably the next shoe to drop will be the employment data, will probably see slow down in hiring, fewer hours worked, things like that. Will give us a sense of whether we're actually heading to recession or just to a slow down.
[Beckworth, D. Kathy Jones on the Current Economic Slowdown, Quantitative Tightening, and the Fed’s New Framework. (Accessed July 29, 2022)
And then, enter the Fed as "fears of recession have grown considerably as the Fed continues to hike interest rates aggressively to fight high inflation. And the economic data has been quite mixed" [Gura, supra].
The U.S. Federal Reserve has a delicate job in front of it — pumping the brakes on the economy in such a masterful way that it achieves what is known as a 'soft landing'. Basically, the central bank is trying to curb demand and bring prices under control without tipping the economy into recession. But cracking down on sky-high inflation is already turning out to be a tough task [...] They have moved more aggressively than expected at the beginning of the year. Fed chair Jerome Powell has recently suggested that a "softish" landing for the economy is possible. But history suggests achieving that perfect landing is easier said than done.
[Horsley, S. The Fed's mission improbable: Beating inflation without causing a recession. (Accessed July 28, 2022)].
According to University of Chicago economist Austan Goolsbee, "We've had 13 or 14 recessions since World War II, and more than two-thirds of those recessions were caused by the Fed raising the interest rate faster than the economy can handle [...] And many forecasters worry that in its effort to control today's high inflation, the Fed could tip the economy into recession" [Id].
'A path to a soft landing certainly exists, but it’s narrow, hidden, and very hard to find,' Roberto Perli, head of global policy research at Piper Sandler, wrote. 'In fact, some indicators suggest the U.S. economy may either already be in recession or close to it'.
[Schemmel, supra].
Duh, two quarters of negative GDP growth and Jerome Powell Fed Chair and Biden in the White House, you tell me please, is America f#@%d or not?
Well my friends, I leave you with only this thought. When listening to the White House talk about the current state of the economy and recessionary statuses, remember...
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