Is the US in recession?

ON JUL 28, the United States Bureau of Economic Analysis (BEA) will release its advance estimate of second-quarter gross domestic product (GDP) growth. The impending announcement has observers on the edge of their seats, with many expecting it to confirm that the US economy slid into recession in the first half of 2022. But even if the announcement seems to say that, the reality is more complicated.

The recession prediction is based on 2 assumptions: first-quarter growth was negative, and a recession is defined as 2 consecutive quarters of negative growth. As a result, if second-quarter growth is estimated to have been negative, the stock and bond markets could react by rising in the very short run. A recession might lead investors to believe that the US Federal Reserve will ease up on its aggressive interest rate hikes.

But there are 3 major flaws to this reasoning. First, growth is as likely to have been positive as negative in the second quarter. Yes, the Atlanta Fed’s GDPNow model estimates a second-quarter annual growth rate of -1.5 per cent, based on data available through Jul 15. Nonetheless, some economists – including me – would argue that growth was more likely positive in the second quarter.