UCSB economics professor says he doesn’t think U.S. is in one
The debate continues on whether the U.S. is in a recession, after Thursday’s report showing a second consecutive quarter of negative growth in the Gross Domestic Product. The report indicated a decrease at an annual rate of 0.9%.
Despite the report, the White House denies there’s a recession, and Dr. Peter Rupert of UCSB agrees.
“No, I would not consider us in recession,” said Dr. Rupert, a professor of economics and the executive director of the UCSB Economic Forecast Project.
“There are many parts of the economy that are very strong, especially the housing market,” Dr. Rupert told the News-Press Friday, answering questions by email. “Yes, things have slowed down, but from a pretty high level.
“We are always in ‘danger’ of entering a recession as many different things can and do happen,” Dr. Rupert said, answering the News-Press’ questions by email.
He noted unemployment remains very low.
“There are more job openings than we have seen before, about two open jobs for every unemployed person,” he said. “So there are lots of opportunities to find a good job.”
While recession is commonly defined as two consecutive quarters of negative growth, this is not an official definition.
“There is no real definition of recession,” Dr. Rupert said.
The private, nonpartisan organization that determines whether there’s a recession is the National Bureau of Economic Research.
“They look at a general view of the economy using data from output as well as the labor market,” Dr. Rupert said.
“The NBER is the group that announces whether we are in.a recession or not,” he said. “They merely look at various pieces of information that would describe the overall economy. Obviously there can be some sectors that are not doing well and others doing great. And if you are in an industry that is facing declining demand (whether in recession or not), then employment can fall leading to more unemployment.
“A recession is one in which there are widespread declines,” said Dr. Rupert.
According to the NBER: “A recession is the period between a peak of economic activity and its subsequent trough, or lowest point. Between trough and peak, the economy is in an expansion …
“The NBER’s definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria — depth, diffusion and duration—as somewhat interchangeable. That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.”
Dr. Rupert noted, “One should take the NBER calling of a recession to be an indicator of some general patterns in the economy. Different sectors behave quite differently and that varies from cycle to cycle. So how people react to the news will also be quite different depending on the sector they are in,” said Mr. Rupert.
According to the White House’ statement on July 21 ahead of the GDP report, “While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle.
“Instead, both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data — including the labor market, consumer and business spending, industrial production and incomes,” the White House said. “Based on these data, it is unlikely that the decline in GDP in the first quarter of this year — even if followed by another GDP decline in the second quarter — indicates a recession.”
The report released on Thursday was the advance estimate. The second estimate will be released on Aug. 25.
The News-Press asked Dr. Rupert how close the two estimates usually are.
“The estimates are usually pretty close,” he said. “In Q1 2022 (the first quarter), for example, the advance was -1.4%, and the second estimate, -1.5. For Q4 (fourth quarter) 2021 advance was 6.9 and the second was 7.0.”
The News-Press asked Dr. Rupert about the link between inflation and the GDP: “The current inflation has caused real average hourly earnings to fall, meaning that what people take home is less,” the economics professor said. “Obviously that will have an impact on spending and savings. However, the bigger issue is that high inflation triggers the Fed to raise interest rates that will also have an effect on spending and saving.”
The News-Press asked Dr. Rupert how the housing market would be influenced. “Housing is a large component in consumption obviously,” he said. “The housing market has slowed recently, and it is no surprise … Housing price growth of 20%, say, is not sustainable, and that occurred in many markets across the U.S..”
“The decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by increases in exports and personal consumption expenditure,” Dr. Rupert said. According to Thursday’s report, “Real GDP decreased less in the second quarter than in the first quarter, decreasing 0.9% after decreasing 1.6%.”