Whether We're In A Recession Or Not Doesn't Tell You Much About The Economy

Like everything else that's happened for the past 28 months, the Commerce Department's news tomorrow will reflect a world turned upside down by Covid.

Do you feel like we’re in a recession? Jerome Powell (pictured above) does not, and neither do I.

The chairman of the Federal Reserve said Wednesday as he announced the second consecutive rate hike (there will likely be a third):

I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well. This is a very strong labor market ... it doesn’t make sense that the economy would be in a recession with this kind of thing happening.

Powell doesn’t know, of course, and neither do I, whether we’re in a recession or not. We’ll find out tomorrow morning when the Commerce Department announces second-quarter GDP growth; if GDP contracted in the second quarter as it did in the first, then the whole world will declare we’re in recession. (It still will be possible that we’re not, but no one will care about that.)

What you must understand is that, in the current environment, which is still largely about Covid (and now also about the Russian invasion of Ukraine), “It doesn’t make any sense” is something you hear economic experts say quite a lot. It’s very possible that we are in a recession and yet all sorts of indicators, including consumer spending and job growth and corporate profits, remain favorable. My solution is not to deny that we’re in a recession (even though Commerce’s first of three estimates of second-quarter GDP growth may be wrong, and even though the National Bureau of Economic Research won’t weigh in until next year). Rather, it’s to recognize that Covid recessions (this would be the second) have not been like other recessions, and that, weirdly, if we are in a recession even as I type these words, that doesn’t mean the nation is in especially poor economic health (except of course for this damned inflation). That is the subject of my latest New Republic piece.