9 things to know about a recession
(REUTERS) – The US looks to be in one but more factors are involved than just GDP decline, like job growth
By some early estimates, the United States economy, as measured by gross domestic product (GDP), may have shrunk in the three months from April to June.
Add that to the decline from January to March, and that would be a contraction for two quarters in a row.
By an often-cited rule of thumb, that means the world’s largest economy is in recession.
But deciding when a recession has begun or predicting when one might occur is not straightforward.
The “two quarters” definition is handy for analysts, journalists and the general public.
But it is not how economists think about business cycles, partly because GDP is a broad measure that can be influenced by factors like government spending or international trade.
Instead they focus on data on jobs, industrial production, spending and incomes – and job growth in particular remains strong in the US, with employers hiring more than expected last month, and raising wages.
On the downside, personal consumption data for May showed spending and disposable income dropped on an inflation-adjusted basis.
That sparked a host of gloomy forecasts for last month, and increasing speculation that a downturn is coming soon, if it is not here already.
Q: Measured by two quarters of falling GDP?
A: Usually, but not always.
For example, GDP in 2001, after revisions, fell in the first three months of the year, rebounded in the next three months and declined again in autumn.
Even though there were not two consecutive quarters of declining GDP, the situation was defined as a recession, because employment and industrial production were falling.
The Covid-19 pandemic recession lasted only two months, economists determined afterwards, from March to April 2020, even though the steep drop in economic activity over those weeks meant GDP shrank overall in both the first and second quarters of the year.
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