Three months ago, many scholars, including myself, argued that two consecutive quarters of shrinking inflation-adjusted GDP met the government’s technical definition of recession. A third negative number would have sealed the deal for sure but the estimate for the third quarter, which is weak but positive, muddies matters.
A recent study shows that the U.S., U.K., and Swedish governments produce overly optimistic GDP growth estimates in election years. Even if the numbers are not subsequently revised downwards, the slight growth should not be interpreted to mean that the American economy is in the clear. Housing prices are plummeting while core inflation remains high enough to make further interest rate hikes likely. Real wages continue to lag and most businesses warn of impending layoffs or hiring freezes.
So only something of an economic miracle will prevent the National Bureau of Economic Research (NBER) from declaring a recession during the Biden administration. A look at the history of its semi-official pronouncements suggests that a quarter of GDP growth will not prevent it from calling the start at the beginning of 2022. In fact, the longest NBER-defined recessions since World War II had one quarter of positive growth embedded in them.
See how the blue line (real GDP) goes above the black line (zero) in the grayed area (NBER recession) during the 1949 recession in the official St. Louis Federal Reserve chart of percent change in real GDP below?
That is not unusual. It happened again in the 1960 recession:
And again in 1970, 1974, 1982, 2001, and 2008, i.e., in all of the nation’s longest postwar recessions:
So don’t let a positive GDP number fool you into thinking the US economy isn’t in a recession. Some call a positive quarterly reading during a recession a dead cat bounce, others a double dip. What you call it doesn’t matter: the only economic thing “strong as hell” right now, besides double dip ice cream sales in the vicinity of POTUS, is fear itself.
