The initial estimate for the quarter ended 6/30/2022 is that the economy contracted for the second consecutive quarter.
This is a major news story because two consecutive quarters of contraction has typically been the rule of thumb for the big “R” word: recession.
GDP contracted 1.6% in the first quarter and 0.9% in the second quarter.
Although, the body responsible for officially declaring recessions, the National Bureau of Economic Research (NBER), does not use two consecutive quarters in its technical definition. It considers a variety of other factors so we cannot say for certain that we are in a recession yet.
HOWEVER, I don’t believe there have ever been two consecutive quarters of negative GDP growth where we haven’t been in a recession so there is a strong historical precedent. Of course, there can always be a first time, but the lessons of history would indicate we’re probably in a recession.
It should also be noted that the average historical lag between when a recession has started and when it’s been officially declared by the NBER is about one year. That implies that if we did indeed enter a recession at the end of 2021 / beginning of 2022 we might not have confirmation until the end of 2022 after we’ve already been in a recession for a year.
So, an official recession declaration is not particularly useful. Markets are forward looking anyway so there’s not much actionable information when the NBER officially declares recession well after the fact. Chances are the stock market will be down quite a bit already by the time a recession is officially declared.
Whether or not we’re technically in a recession there is no doubt the economy is slowing.
All stimulus of the last several years managed to do was to pull demand forward and cause prices to rise higher than they would have absent any stimulus. This is consistent with the history of stimulus and consistent with common sense economics.