- Treasury Secretary Janet Yellen said the US economy is not in a recession despite two straight declines in quarterly GDP growth.
- She pointed to the strong labor market as reason to believe that the US economy is not experiencing a broad economic slowdown.
- The US economy is officially not in a recession until the National Bureau of Economic Research declares one.
Treasury Secretary Janet Yellen is adding to a growing chorus that the US economy is not in an economic recession, despite Thursday’s negative second-quarter GDP print.
GDP growth in the second-quarter declined by 0.9% after falling 1.6% in the first-quarter of 2022. An unofficial rule of thumb typically defines a recession as two back-to-back quarters of negative GDP growth.
But Yellen pointed to the strong job market as reason to believe that the US economy has not entered a broad slowdown in growth, echoing similar comments from Fed Chairman Jerome Powell.
A true economic recession is a “broad-based weakening of the economy. That is not what we’re seeing right now,” Yellen said at a press conference on Thursday. Instead, the US economy has added 2.7 million new jobs in the first half of the year, with 1.1 million jobs being added in the second-quarter alone.
That’s a sharp difference from prior recessions, which typically saw an average loss of 240,000 jobs in the first three months of the slowdown, Yellen argued. Instead, there remains a shortage of workers to fill job openings, with there being 1.9 vacancies for every unemployed person searching for a job.
And while inflation remains elevated and is putting pressure on consumers, future consumer price gains are “likely to come down in the days ahead,” Yellen said. A drop in commodity prices, including oil and food, could deliver the slowdown in rising prices that she is looking for and would be a big relief for consumers.
Whether or not the US economy is actually in a recession is ultimately a game of semantics. The National Bureau of Economic Recession, which is tasked with making the official call, defines the a recession as: “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
“The committee’s view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another,” the NBER says on its website.
A big part of that criteria is jobs. And with the unemployment rate still hovering near a 50-year low, it could take a surge in job losses for the NBER to be on board with calling the current economic slowdown an actual recession.