Last week’s report on economic output recharged speculation about whether the U.S. economy is in a recession. Gross domestic product shrank for the second quarter in a row, a common, but unofficial, definition of a recession.
But GDP isn’t the only measure that matters, especially in the tangled mess of the pandemic economy.
The National Bureau of Economic Research (NBER) has the final say on whether a period of economic decline is a recession, a determination that can lag for months. NBER economists consult a wide range of indicators that suggest this year’s economy stands on sturdier ground than in recent recessions.
Americans feel bad about the economy, and there’s no doubt that soaring prices on everyday essentials are making it harder to get by. But a recession isn’t a measure of how hard it is to make ends meet. It is, as defined by NBER, a downturn that is deep, diffused and lasts for at least a few months.
But there is no exact formula for a recession. For instance, two months in early 2020 were declared a recession, despite being so brief, because the economic decline from the pandemic was so drastic and far-reaching.
“Every recession is unhappy in its own way,” said David Wilcox, senior economist with the Peterson Institute for International Economics and Bloomberg Economics. “It’s important for the Business Cycle Dating Committee to sift through the indicators and make their decision in a flexible way.”
We took a look at where the indicators used by the decision-makers at NBER stand today, compared with recessions over the past 50 years. This year’s economy is far from bulletproof — but it is strikingly different from hard times in the past.
The overall size of the economy
Gross domestic product measures the country’s economic growth by tallying up the value of all its goods and services. It has declined the past two quarters, but GDP often has big revisions after its initial release, averaging a full percentage point of change between the first estimate and its final revision months later.
NBER also takes into account GDP’s less prominent cousin, gross domestic income (GDI), which measures the same thing — economic growth — from a different angle: how much money was earned by making those goods and providing those services.
In practice, the measures aren’t quite equal, but this year they’re pointing in opposite directions: GDP says the economy is shrinking, while GDI says it’s growing.
Averaging the GDP and GDI together, as NBER does, suggests the economy has largely stayed the same in the first three months of the year. Gross domestic income for the second quarter has yet to be reported.
Employment shows a much stronger picture, especially when compared with past recessions.
NBER looks at two different measures of employment: payrolls reported by businesses and direct household surveys. Both are a big contrast with the job losses seen in the first six months of most previous recessions.
There are signs that last year’s frenetic labor market is easing: job openings dipped slightly in June after months of record highs, and tech companies are slowing their growth. But unemployment remains at a pandemic low.
“Employment is usually a contemporaneous indicator,” Wilcox said. “If the overall economy was contracting, you’d see it in employment.”
Earning and buying, making and selling
Total income offers an additional angle on employment, because it reflects reductions in working hours that might not result in job losses. And income has largely held steady, even after adjusting for inflation.
Consumer spending remains close to its all-time pandemic highs. Rising prices are putting many households under economic strain, however. Essentials like groceries and gas are taking up a greater part of household budgets, potentially crowding out discretionary spending on goods.
Industry and manufacturing represent only a small part of the economy, but economists consult these measures because they have historically been sensitive to changes in the overall economy.
The Industrial Production Index, which measures the value of items produced in the United States, shows growth far above that of previous recessions.
On the other hand, the inflation-adjusted value of items sold in the United States, measured by real manufacturing and trade sales, has dropped, resembling the patterns of previous recessions. That may be because of how the pandemic reshaped consumer spending: goods spending is starting to cool from its pandemic-fueled frenzy, and service spending has finally risen back to its pre-pandemic levels.
We won’t know for a while whether we are in a recession and, if so, when it began. But the measures that matter to decision-makers at NBER suggest a different and more complicated picture than previous recessions.
If we are in a recession or enter one soon, it may be unlike the most recent economic downturns we’ve faced.
“All of our thinking is based on the last 20 years of recessions,” said Thomas Coleman, an economist at the University of Chicago. “I’m not sure that’s a good guide.”
The Great Recession and the 2020 recession were both tipped off by crises: a financial meltdown and a pandemic suddenly shutting down the economy.
Without a crisis on a similar scale, Coleman says, the next recession will be more like those from the 1970s to the early 2000s, causing significant pain but not repeating the devastating job losses of the past two recessions.
“The question we need to ask,” said Coleman via email, “is ‘do we feel unlucky?’ ”