US recession debate misses the point

THE United States is wrapped up in a public debate about the ‘r’ word. In the aftermath of two consecutive quarters of negative growth, the question of whether the US has entered recession has become deeply politicised. Media outlets have, for their part, stoked this public debate.

First, the US is not in a recession right now. A US recession is only official when the National Bureau of Economic Research (NBER) says one is taking place. There is nothing fundamental about the two quarters of negative growth rule as the measure of a downturn. There are also several confounding factors that make interpreting current data difficult, belying current advocates of using the ‘r’ word. Labour market and employment data remain solid, even if they are softening, and gross domestic income has been firmly stronger than gross domestic product data. GDP has been heavily impacted by volatile inventory and net export swings.

Second, the fixation on whether the US is now in recession misses the point. More critically, throughout the economy, there are unmistakable signs of slowing growth and these will grow in the months ahead.