Did the U.S. economy enter a recession this past spring or not?
The question has been the subject of much partisan political debate, though economists have mostly said they doubt the economy is in a recession. New data released by the Commerce Department Thursday confirmed that the economy is in a weird place — though the recession question remains a confusing one bedeviled by contradictory evidence.
The Commerce Department on Thursday revised its second quarter GDP growth figure, which now stands at an annualized rate of -0.6%, less lousy than the -0.9% reported initially, but still negative. Combined with the 1.6% contraction in the first three months of the year, the economy has officially shrunk for two straight quarters, consistent with one unofficial definition of recession.
And yet …
The Commerce Department also said Thursday that inflation-adjusted gross domestic income rose 0.3% in the second quarter of 2022, equal to a 1.4% annual rate. GDI, which sums all personal and business income in the economy, rose the quarter before, as well, suggesting that the economy has been and still is growing at a modest clip.
In theory, the GDP and GDI figures should be equal, since they are two sides of a nationwide balance sheet. They often vary a bit, but now they are far apart, making it hard to determine which way the economy is moving. Like we said, weird.
“The conflicting signals are a mystery because the two measures, in theory, should be identical,” explains Ben Casselman of The New York Times. “They measure the same thing, economic output, from opposite sides of the ledger: One person’s spending is someone else’s income. In practice, the two indicators don’t always match because the government can’t measure the economy perfectly, but they have rarely diverged this much for this long.”
Some economists believe the income data gives a better sense of what’s really going on. Jason Furman, who led President Obama's Council of Economic Advisers, said Thursday that the average of the GDP and GDI numbers — a measure that is used by both the Bureau of Economic Analysis and the National Bureau of Economic Research — shows that the economy grew at an 0.4% rate in the second quarter.
“Overall GDP in Q2 was 2.2% below CBO's pre-pandemic forecast,” Furman wrote. “That could indicate lingering effects of the pandemic. Or it could just be mismeasurement: using the average of GDP and GDI the economy is right where CBO expected it to be.”
