Asma Khalid
David Gura
The federal government is releasing its latest update on the U.S. economy. But numbers showing negative growth in the second quarter of the year will add to fears that a recession is underway.
ASMA KHALID, HOST:
We now have an important report card on the state of the economy. From April through June, the U.S. economy contracted, again – this time, by 0.9%. This is the second straight quarter of negative growth, and that will, of course, fuel fears that the U.S. economy is in a recession. The latest GDP report comes against a backdrop of sky-high inflation that already has Americans increasingly worried about their own financial situation. NPR’s David Gura joins us now to walk us through this latest data. So, David, what exactly happened in the second quarter?
DAVID GURA, BYLINE: So, as you said, we saw another contraction, smaller than in the first quarter, but economic growth did decline. And broadly speaking, this is attributable to businesses and the government spending less. Companies are starting to retrench. Remember, borrowing is getting more expensive, so there is less money to invest. They’re becoming more cautious. Retailers didn’t build up inventories. The housing market, which was so hot for so long, has started to cool down. Of course, interest rates have gone up. You know, as I look at the data here, looking for bright spots, wages were up. People were spending in restaurants. They were going on trips. But broadly speaking, this is bad news politically for the White House. There is this rule of thumb among economists that two consecutive quarters of negative growth signals a recession. That’s not the official definition, but the Biden administration knows it’s going to be a problem for them and for Democrats broadly as we approach the midterms.
KHALID: You know, you mentioned the Biden administration, David. My day job is I cover the White House. And I will say that we have seen this White House go to great lengths over the past few days to make sure that reporters know that even seeing two quarters of negative growth does not necessarily mean that we are in a recession.
GURA: They have. They’ve been calling econ reporters as well, and their message is that nuance is important here. President Biden and his advisers have tried to get ahead of this report with what I guess we could call a prebuttal. And he and Treasury Secretary Janet Yellen are going to address these data in separate speeches later today. Janet Yellen appeared on NBC’s “Meet The Press” on Sunday.
(SOUNDBITE OF TV SHOW, “MEET THE PRESS”)
JANET YELLEN: A recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that.
GURA: She pointed to consumer spending, which has continued to grow, credit quality, how households are doing and a jobs market that’s still very strong. In June, the U.S. economy added 372,000 jobs. But the challenge for the White House is a majority of registered voters believe we are in a recession already, given slowing growth and high inflation. And ahead of the midterm elections, Republicans are saying Democrats are making a semantic argument when people are suffering.
KHALID: And, David, what is the commonly accepted definition of a recession? Help us understand that.
GURA: The official designation of a recession in the United States is made by a committee of eight economists from a private, nonpartisan group called the NBER, the National Bureau of Economic Research. That organization says GDP is an important factor, but they also take into consideration other economic indicators – income, for instance, how much factories are producing and the unemployment rate. You know, the problem with relying on the NBER’s call is that it tends to take a long time, many months, for these economists to make that official determination. So there’s a lag. It usually happens well after business leaders and the rest of us, for that matter, see signs a deep downturn is underway.
KHALID: OK. So, David, we have been talking at length here about the definition of a recession and what economists say. You know, leave that aside for a moment. How is the overall economy doing?
GURA: Well, in some ways, it’s doing well. Again, the jobs market is strong. Hiring is solid. The unemployment rate keeps falling. Last month, it was at 3.6%. But inflation is still red hot, the worst it’s been in four decades. Home prices keep soaring; so does rent. The stock market has plummeted, so retirement accounts have taken a big hit. And I want to come back to sentiment, how people feel about the economy right now. This matters. Politicians know that. Policymakers also know that. It matters more than a highly technical definition.
KHALID: NPR’s David Gura, thanks as always.
GURA: Thank you.
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