The front page of our New York Post today, as usual, captures the zeitgeist. It's simply a blank white page featuring the dictionary entry for the word "recession." And at the bottom, in small letters, it reads, "Despite being the literal definition of the word, President Biden yesterday said we weren't in a recession."
The irony is that the description they provide shows why we're not in the literal definition of recession: "A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters," it reads.
Are trade and industrial activity reduced right now? I'm not sure what "trade" exactly refers to, but industrial production rose from January through May, before dipping slightly in June. And new orders for durable goods--a leading gauge of manufacturing and economic activity--have risen steadily since January, including a surprise gain in June despite expectations for a decline.
And while that's all measured in dollars, which are problematic right now because of inflation, we know that economic activity was not on the decline in the first half of the year because we added 2.74 million jobs and saw the unemployment rate fall from 4% to 3.6%. The other measures the official recession dating committee uses are also not pointing to broad retrenchment in the first half.
Real personal income less transfers? $14.47 trillion in June, versus $14.44 trillion in January (and it actually surpassed $14.5 trillion in May). Again, that's real, meaning after inflation. In other words, even though real GDP fell in the first half of the year, real personal income excluding government transfers actually rose slightly. Real consumer spending? $13.91 trillion in June, versus $13.86 trillion in January (and a recent high of nearly $14 trillion in April).
You can see where I'm going here. On the labor market, the indicators haven't yet peaked. On the consumer side, they peaked in real terms in the late spring--but may yet reach new highs in the coming months now that gasoline prices have sharply fallen. On the industrial side, we've only seen one month so far of actual declines, and these are volatile data that are often revised.
If we see all these data points consistently dropping for the next six months, then of course, this will be declared a recession, and probably the earliest starting point would be around May--not January, regardless of the fact that real GDP declined. But if we don't see these data points consistently weaken in the next couple months--and I'm not convinced we will--then it means the business cycle and the expansion is actually still going.
So I'm not obsessed with whether politicians and the Fed chair will utter or won't utter the word "recession" right now. What I'm obsessed with, as you all know, is the fact that they won't talk plainly about inflation. Inflation already IS "the recession." The Thing is already happening; it's a Great Inflation this time around though, not a Great Recession like 2007-09.
If public officials want to keep their credibility, they need to acknowledge this fact. No one believes that this is a great economy, or is impressed by hearing dazzling stats about job creation. People want to be reassured that our leaders see the problem, understand how they caused it, and are genuinely trying to fix it. The clearest sign that this is starting to sink in is in the recently renamed "Inflation Reduction Act" now working through Congress. (Less clear is whether it will actually reduce inflation.)
Just this morning, we got more bad news on inflation. The Fed's preferred gauge, which hasn't been as bad as the CPI, came in hotter than expected. Headline "PCE" (for personal consumption expenditures) inflation rose 1% just last month! And is running 6.8% year-over-year. Even the core was hot, rising 0.6% last month--excluding energy and food!--and up 4.8% from a year ago.
Houston, we have a problem. And that problem is INFLATION.
See you at 1 p.m!