We are in a slowing economy whether it’s called a recession of not, says NCSU economist

Editor’s note: Dr. Mike Walden is a Reynolds Distinguished Professor Emeritus at North Carolina State University.

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RALEIGH – With the GDP number coming in negative today, the rule-of-thumb definition of a recession is met.  The rule says a recession is occurring when there has been two consecutive quarters of negative real (inflation-adjusted) GDP growth.

While this rule of thumb is widely used, the “official” designation of a recession is made by economists at the National Bureau of Economic Research (NBER), a century-old think-tank.  Their definition of a recession is different: “a recession is designated when there is a broad-based reduction in economic activity over several months.”

The key here is “broad-based,” meaning the NBER will look at many measures, not just one.

While the NBER will not weigh in on the latest numbers for several months, I think one reason to pause on declaring a recession is that we haven’t yet seen substantial deterioration in the labor market.  Indeed, job growth has still been robust, and there’s been no rise in the jobless rate.  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.

Economy shrinks again in second quarter – has a recession arrived?

My bottom line is this:  We are in a slowing economy – exactly what the Federal Reserve (Fed) wants.  If the Fed continues to raise interest rates – as I think they will – the economy will slow further and we very well may see aggregate job losses and a rising jobless rate.

My guess is the NBER will NOT declare a recession based on the first and second quarter GDP drops.   However, if we see pullbacks in the labor market in the 3rd or 4th quarters – or both – then I predict the NBER will declare a recession.

One final interesting note:  For the NBER to declare a recession, the quarterly declines in the economy do not need to be in consecutive quarters.  For example, if the third quarter GDP number is positive but the fourth quarter GDP number is negative, the NBER could still designate a recession as occurring in 2022.