Treasury Secretary Janet Yellen on Thursday suggested the U.S. economy is not in a recession, despite new figures that showed two consecutive declines in gross domestic product — the unofficial signal that a downturn has started.
Most economists define a true recession as involving a “broad-based weakening of the economy” including substantial job losses, business closures and a decline in private sector activities, Yellen said during a press conference in Washington, D.C.
“That is not what we’re seeing right now,” she said.
Her comments came hours after the Commerce Department reported that GDP, the broadest measure of goods and services produced across the economy, shrank by 0.9% on an annualized basis in the three-month period from April through June. Economic output already fell over the first three months of the year, with GDP tumbling 1.6%.
Recessions are technically defined by two consecutive quarters of negative economic growth and are characterized by high unemployment, low or negative GDP growth, falling income and slowing retail sales, according to the National Bureau of Economic Research (NBER), which tracks downturns.
With back-to-back declines in growth, the economy meets the technical criteria for a recession, which requires a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Still, the NBER — the semi-official arbiter — may not confirm it immediately as it typically waits up to a year to call it.
The NBER has also stressed that it relies on more data than GDP in determining whether there is a recession, such as unemployment and consumer spending, which remained strong in the first six months of the year. It also takes into consideration the depth of any decline in economic activity.
“The committee is not trying to make a real-time determination of are we in a recession at the moment, right?” Jim Poterba, an MIT economist and the president of the NBER, told NPR this week. “We’re waiting until the data settle down and we have high confidence to be able to make these turning point calls with very little concern about doing this in real time.”
Yellen on Thursday reiterated that inflation remains too high and that bringing it down is a top priority for President Biden. She suggested that prices are “likely to come down in the days ahead.” Reducing inflation could cause the unemployment to tick higher, but she maintained the labor market will remain strong.
“This is a very unusual situation where we have a slowdown, but the labor market remains very tight,” Yellen said. “We could see some mild easing of pressures in the labor market yet continue to feel we’ve got a good strong labor market that’s operating in full employment.”