Broker Check

GDP and the Recession Conversation

August 03, 2022

The GDP report came out for Q2 and showed another decline of 0.9% to GDP. Immediately, discussion ramped up asking questions if this is officially a recession and when some answered that it isn’t, there was major push back. 

So what exactly is happening? 

The definition of recession, or at least the generally accepted definition, is a period of time of economic decline shown by two consecutive quarters of falling GDP. 

Which we have had.

However, there is a group of people who determine whether we are in a recession or not. They are the “National Bureau of Economic Research” (NBER).  Their definition differs slightly from the definition we see above. Their definition is, “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” 

The difference and confusion comes from the wording and general subjectivity of the definition. 

Even though we have seen two consecutive quarters of declining GDP, some believe (including the NBER), the decline we are seeing is not significant enough and does not spread throughout the entire economy to justify calling this a recession at this time. 

All of the economic strength that people are pointing to is within the labor market. We are still adding a tremendous amount of jobs month to month, roughly 400k, and there are still ample opportunities available for those who are unemployed to find employment. Because of this, we are still seeing elevated consumer spending.

This data is not consistent with a traditional recession that we would see. Typically in a recession you’ll see unemployment increase and then spending decrease because of that. 

So we see that it comes down to differences and interpretations of the data and definition of what a recession is. 

We will see what the coming months and conversations bring. In the meantime, both of what we are seeing remains true. Yes, GDP has declined 2 quarters in a row. But, the labor market is still incredibly strong leading to strong spending and company earnings.