Walden: Consider a ‘pause’ in declaring recession due to robust job growth

RALEIGH – The growth of the United States economy, as measured by gross domestic product (GDP), has now been in negative territory for two consecutive quarters. Still, there’s not likely to be an official determination that we’re living in a recessionary environment for many months. And, there are reasons to believe that an official designation of a recession may not come at all this year, despite the shrinking of the economy. What’s going on here?

Here’s the latest: The U.S. economy shrank, again, in the latest quarter, according to the most recent report from the Bureau of Economic Analysis.

But the entity that formally determines whether the economy is in a recession is the National Bureau of Economic Research (NBER), a private entity that officially defines a recession as occurring when there is a “significant decline in economic activity” that lasts for “more than a few months.”

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Reason to ‘pause’ on recession designation

Still, economists typically understand a recessionary environment as one in which there have been two consecutive quarters of negative economic growth, said Dr. Michael Walden, a Reynolds Distinguished Professor Emeritus at North Carolina State University, and a regular contributor to WRAL TechWire.

“With the GDP number coming in negative, the rule-of-thumb definition of a recession is met,” said Dr. Walden in an interview with WRAL TechWire on Friday.

Still, the NBER won’t officially rule on the latest data for another few months. And though there have been two quarters of negative economic growth, said Walden, “I think one reason to pause on declaring a recession is that we haven’t yet seen substantial deterioration in the labor market.”

Employers, including many in the Triangle and across North Carolina, are continuing to post job openings, and the numbers have actually increased in recent weeks, the latest WRAL TechWire Jobs Report found. However, companies large and small are announcing plans that shift their workforce, including hiring slowdowns and layoffs, which WRAL TechWire is tracking as well.

But the latest national data on the employment situation was strong, with the U.S. economy adding 372,000 jobs in June. And July figures will be released next week, so it may be preemptive to state that we’re in a recession, Walden noted.

“Job growth has still been robust, and there’s been no rise in the jobless rate,” said Walden. “While this may change in upcoming months, the worst that can be said for the job market is that job gains, while occurring, show signs of slowing.”