Conventional wisdom says that if the economy shrinks for two straight quarters, it’s a recession.
We learned Thursday that gross domestic product fell by an annual rate of 0.9% over the last three months, following a contraction of 1.6% in the first quarter.
So … recession, right?
Maybe. And maybe not.
There’s a government agency tasked with making the official call as to when the economy is in a recession. And the National Bureau of Economic Research typically takes months to figure that out.
The bureau weighs a variety of factors, including not just GDP shrinkage but also jobs, wages, retail sales and other data points.
It seems indisputable, however, that a downturn is upon us and the economy is slowing.
Consumer and business spending declined in the second quarter as financial wagons were circled amid the highest inflation in 40 years.
Some economists say that despite the two quarters of contraction, we probably weren’t in a full-blown recession during the first half of the year.
Right now may be a different story.
The economic betting line is that if we’re not in a recession — even a mild one — during the current second half, we soon will be.
Keep in mind, though, that a slowdown is exactly what the Federal Reserve has been trying to engineer through a series of aggressive rate hikes. This is a key monetary tool for easing inflation.
So a downturn isn’t just to be expected. It’s desirable.
That said, it’s a tricky business bringing down consumer prices without harming the macro economy.
Can the Fed pull off a so-called “soft landing”? Stay tuned.
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