If it Quacks Like a Recession, Is it a Recession?

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Ever since the first quarter showed a decline in real GDP, the word “recession” has been increasingly prevalent in our conversations. The classic definition of recession, or at least one of the most widely accepted definitions, is two consecutive quarters of GDP decline. When the real GDP declined again in the second quarter, albeit slightly, that classical definition was met.

Why hasn’t it been made official or even generally acknowledged?

There are two good reasons for the lingering ambivalence on the topic, along with continuing uncertainty about what the economy does in the next few quarters.

The GDP declines in the first half of this year have been modest, and they have also been masked by full employment and inflation, neither of which have retreated…yet. The heated economy is running at almost full tilt, but underneath is a treadmill belt that is running just a bit faster. From the frame of reference of the runner (us, inside the economy), we are cranking hard. From outside the frame of reference, the absolutes of economic analysis, there’s a slight yet observable retrograde motion. But it isn’t pronounced enough yet to make a firm recessionary declaration, especially when the very announcement itself, right or wrong, may create the self-fulfilling prophecy that everyone dreads.