WASHINGTON – For the past month or so, Republicans have insisted that the U.S. economy is in a recession, a period of reduced economic activity that can be politically disastrous for the party in power.
Then on Friday, the US Labor Department announced that the economy added half a million jobs last month, pushing the national unemployment rate to 3.5% – almost as low as it’s ever been, and a strong sign that the economy it is not, in fact, in recession.
But Republicans insisted at a news conference Friday, where they shot down Democratic plans to pass a major domestic policy bill, that there is a recession.
“We are in a recession too [bill] it will make them worse,” said Sen. Lindsey Graham (RS.C.).
HuffPost asked the five Republican senators at the presser how July’s job growth could happen in a recession. Sen. Bill Cassidy (R-La.) pointed out that in the first and second quarters of the year, the US saw negative growth in gross domestic product, an important economic metric.
“The definition of a recession is negative GDP growth for two consecutive quarters,” Cassidy said.
Cassidy has a point: If you do a Google search for the definition of the word “recession,” the top dictionary result he calls it “a period of temporary economic decline in which trade and industrial activity decline, generally identified by GDP falling in two consecutive quarters.”
But economists don’t use a simple rule of thumb to figure out when the economy is in a recession — they follow the determinations of the National Bureau of Economic Research, a private nonprofit that has acted as a watchdog of business cycle ups and downs since the 1960s.
The NBER describes a recession as a “significant decline in economic activity” spread across all industries. Quarterly GDP is one factor, but the most important measures are personal income and payroll. Both of these metrics show growth.
In a Frequently Asked Questions page on its website, the NBER expressly rejects the two-quarter definition, stating that “GDP could decline by relatively small amounts in two consecutive quarters without warranting a finding” that economic activity had peaked and begun to decline. The GDP readings This year it has fallen modestly for somewhat technical reasons, such as declines in private stock investment by businesses.
One tricky thing about the recession debate is that the determination of a recession comes many months after the fact, after revisions to the government’s various monthly reports on jobs, income, consumer spending and manufacturing. So even after a recession starts, there is no official declaration until later.
Now, just because there is strong job growth, that doesn’t mean people have to be happy with the economy. Consumer prices are rising at their fastest rate in decades, including a 9.1% rate in June. Consumers are particularly affected by volatile food and gas prices, and consumer sentiment, as measured by surveys, was extremely low. Polls also show voters believe the economy is in a recession, and Republicans want those voters on their side.
“I’m very happy that we have strong job growth, but we’re in a recession,” Cassidy said.
At the same time, some of the voters who tell pollsters they think the economy is in a recession could be saying so because they’ve heard Republicans say it so many times on TV. Since a bad economy could benefit Republicans in the November election, they have an incentive to paint as bad a picture as possible and less incentive to present a more nuanced, truer picture.
What’s strange is that Republicans are exaggerating economic problems when the public already strongly dislikes what’s going on. And there is a real risk of a recession around the corner, with the Federal Reserve raising interest rates to reduce inflation.
Sen. Roger Marshall (R-Kan.) offered his own measurement of a recession: “A recession, to me, is when I come home and the community bankers say, “Hey, Doc, what’s going on? Business is slowing down. Why are people afraid to invest?’
Sen. John Barrasso (R-Wyo.) noted that labor force participation numbers are still below pre-pandemic levels. “And if you talk to families, they’re finding it harder and harder to keep up,” he said.
Graham suggested that questioning his economic analysis amounted to media bias against Republicans. “If a Republican was in charge, you wouldn’t be asking that question,” he said.
Graham, in particular, should be aware that the economic data does not point unequivocally to a recession. In response to a question from the South Carolina Republican this week, the head of the Congressional Budget Office — an economist named Phillip Swagel — told him it’s Too early to say there is a recession.
“It is likely that, in retrospect, it will become apparent that the economy went into recession at some point this year,” Swagel wrote. “However, this is not clear from the data available in early August.”