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 devastating for the party in power.
Then, on Friday, the U.S. Labor Department announced the economy added half a million jobs last month, pushing the national unemployment rate down to 3.5% ― almost as low as it has ever gotten, and a strong indication that the economy is not, in fact, in a recession.
Still, Republicans insisted at a press conference on Friday, where they bashed Democrats’ plans to pass a major domestic policy bill, that there’s a recession going on.
“We’re in a recession and this [bill] is going to make it worse,” Sen. Lindsey Graham (R-S.C.) said.
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 U.S. saw negative growth in gross domestic product, an important economic metric.
“The definition of recession is negative GDP growth in two successive quarters,” Cassidy said.
Cassidy has a point: If you do a Google search for the definition of the word “recession,” the top dictionary result calls it “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.”
But economists don’t use a simple rule of thumb to figure out when the economy is in recession ― they follow the determinations of the National Bureau of Economic Research, a private nonprofit organization that’s served as custodian of the business cycle’s ups and downs since the 1960s.
The NBER describes a recession as “a significant decline in economic activity” that is spread across industries. Quarterly GDP is a factor, but the most important measures are personal income and payroll employment. Those metrics both show growth.
In a “Frequently Asked Questions” page on its website, the NBER explicitly rejects the two-quarters definition, stating that “GDP could decline by relatively small amounts in two consecutive quarters without warranting the determination” that economic activity had peaked and begun to fall. The GDP readings this year showed modest declines for somewhat technical reasons, such as decreases in private inventory investment by businesses.
A tricky thing about the recession debate is that the recession determination comes many months after the fact, following revisions to the government’s various monthly reports on jobs, income, consumer spending and manufacturing. So even after a recession starts, there’s no official declaration until later.
Now, just because there’s strong job growth, that doesn’t mean people should be happy with the economy. Consumer prices have been rising at the fastest pace in decades, including at a 9.1% rate in June. Consumers are especially buffeted by volatile prices for food and gas, and consumer sentiment, as measured by surveys, has been remarkably low. Surveys also show that voters believe the economy is in a recession, and Republicans want those voters on their side.
“I’m very pleased that we’ve got 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 recession could be saying so because they have heard Republicans say it so many times on TV. Since a bad economy could benefit Republicans in November’s election, they have an incentive to paint as dire a picture as possible, and less incentive to present a more nuanced, more truthful 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 recession around the corner, with the Federal Reserve hiking interest rates in order to bring inflation down.
Sen. Roger Marshall (R-Kan.) offered his own recession metric: “Recession, to me, is when I go back 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 are having a harder and harder time keeping up,” he said.
Graham suggested that questioning his economic analysis amounted to media bias against Republicans. “If a Republican were in charge, you wouldn’t be asking that question,” he said.
Graham, in particular, should know that economic data is not pointing unequivocally toward recession. In response to a query from the South Carolina Republican this week, the head of the Congressional Budget Office — an economist named Phillip Swagel — told him it’s too soon to say there’s a recession.
“It is possible that, in retrospect, it will become apparent that the economy moved into recession sometime this year,” Swagel wrote. “However, that is not clear from data that were available at the beginning of August.”