(The Center Square) – The U.S. economy has shrunk for six consecutive months, according to federal data released Thursday. which led many economists to declare a recession. But the Biden administration is pushing back, arguing the U.S. is not in a recession after all.
The U.S. Bureau of Economic Analysis released economic data Thursday showing the U.S. GDP declined 0.9% in the second quarter of 2022, the second consecutive quarter of negative growth, comprising the traditional definition of a recession used in the past. Rising inflation and elevated gas prices have also served as poor economic markers.
Economist Orphe Divounguy pointed to a sharp dip in residential investment as a factor that helped propel GDP downward.
“Builder confidence has been declining rapidly,” he said.
However, the Biden administration has pointed to economic gains made since the COVID-era shutdowns crippled the economy as well as other markers such as manufacturing investment and relatively low unemployment.
“That doesn’t sound like a recession to me,” Biden said Thursday.
But many experts said the U.S. has entered a recession and put the blame at Biden’s feet.
“Over the last 18 months, Congress, President Biden, and the Federal Reserve set our nation up for disaster,” said E.J. Antoni, an economist at the Heritage Foundation. “The consequence is that we are now in a recession. The current economic situation is the consequence of profligate federal spending financed by printed money. Now, instead of acknowledging responsibility for their failed policies, the Biden administration chooses to play word games, just like they did with inflation.
"Unlike the bureaucrats here in Washington, those American families have been feeling the economic pain and were well aware of the reality of this recession long before today’s numbers were released," he added. "By denying it’s even happening, the Biden administration is demonstrating just how out of touch they are.”
The National Bureau of Economic Research's Business Cycle Dating Committee is usually looked to to officially declare a recession, and all eyes will be on it now that the GDP numbers have come in.
"There has never been a time when the Business Cycle Dating Committee did not declare a recession when real GDP declined for two consecutive quarters since the availability of quarterly GDP data," said Erik Randolph, the Georgia Center for Opportunity’s director of research. "In fact, the opposite is true. There have been two times, since the availability of the data, without two consecutive real GDP declines when the Committee declared them to be recessions. This happened with their declared 1960 and 2001 recessions.”
Randolph said not declaring a recession this time would be “unprecedented.”
“Who knows if and when the NBER Committee will declare whether we're already in a recession, and for how long,” he added. “But if it doesn't declare so despite the real GDP data, it would be unprecedented and require a good explanation. In the meantime, GDP gives perhaps the broadest measure of economic activity, giving a strong signal that we're in a recession until such time economists work out their various methodologies to affirm or deny."
Critics argued Biden is trying to redefine the term “recession” for political reasons.
“The latest of their verbal gymnastics is an attempt to redefine a ‘recession’ and deny the reality of the current moment,” Antoni said. “It adds insult to injury for hundreds of American families when the Biden administration engages in this Orwellian doublespeak. Make no mistake – while Biden officials debate the meaning of ‘recession,’ working and middle-class Americans have been living in one for months.”
Some said that while we are not “officially” in a recession, entering one is now unavoidable.
“Officially we are not in a recession,” said Desmond Lachman, an economist at the American Enterprise Institute. “[But] it is too late for the Fed or anyone else to prevent a recession. The mistake the Fed made was to allow inflation to get too high last year. Once they made that mistake the dye was cast for a recession. What they can do, however, is to back off their current hawkishness, which is going to make this recession worse than it need otherwise be.”
The Fed has raised interest rates bu 0.75% twice in the past month in hopes of slowing inflationary pressures driving up prices.
Going forward, others urged against raising taxes given the economic downturn.
"The worst thing any government can do during a recession is raise taxes,” said James Quintero of the Texas Public Policy Foundation. “It inflicts economic pain and slows recovery. That is true at the federal, state, and local government levels. Local elected officials should exercise particular caution as most are considering their tax rates for the upcoming fiscal year. All local governments should adopt the no-new-revenue tax rate so as to avoid increasing the tax burden on struggling Texans at this time."