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A12 BUSINESS
Friday 30 September 2022
EXPLAINER: How do we know when a

recession has begun?

By CHRISTOPHER RUGABER
AP Economics Writer
WASHINGTON (AP) — The
economy shrank in the first
half of this year, the gov-
ernment confirmed in a
report Thursday, underscor-
ing fears of a broad-based
slowdown that could lead
to a recession. At the same
time, the number of peo-
ple seeking unemployment
benefits a figure that often
reflects the pace of layoffs
fell to a five-month low. The
drop suggests that compa-
nies are holding onto their
staffs, despite the slow- Fresh seafood is shown for sale at a grocery store, Wednesday,
down in growth, and that July 27, 2022, in Surfside, Fla.
those who do get laid off Associated Press
are quickly finding new bank will raise its key inter- definition.
jobs. Hiring remains strong est rate as high as needed Still, in the past, it has been
and the unemployment to wrestle inflation back a useful measure. Michael
rate is near a 50-year low. down to its 2% target. Pow- Strain, an economist at the
Given the strength of the ell and other officials have right-leaning American En-
job market, few economists signaled they will do so terprise Institute, has noted
think we are in a recession even if a recession results. that in each of the past 10
now. With consumers man- So how, exactly, do we times that the economy
aging to keep spending know when an economy is shrank for two consecutive
and the trade deficit nar- in recession? Here are some quarters, a recession has
rowing, economists expect answers to such questions: resulted.
the economy grew albeit WHO DECIDES WHEN A RE- At the same time, job
slowly in the July-Septem- CESSION HAS STARTED? growth remains strong and
ber quarter. Recessions are officially consumers are still opening
Six months of contrac- declared by the obscure- their wallets and spending
tion is a long-held informal sounding National Bureau more, trends that rarely oc-
definition of a recession. of Economic Research, cur during recessions.
Yet nothing is simple in a a group of economists DON’T A LOT OF PEOPLE
post-pandemic economy whose Business Cycle Dat- THINK A RECESSION IS
in which growth is nega- ing Committee defines a COMING?
tive but the job market recession as “a significant Yes, because many people
strong. The economy’s decline in economic activ- now feel more financial-
direction has confound- ity that is spread across the ly burdened. With wage
ed the Federal Reserve’s economy and lasts more gains trailing inflation for
policymakers and many than a few months.” most people, higher prices
private economists since The committee considers have eroded Americans’
growth screeched to a trends in hiring as a key spending power.
halt in March 2020 as CO- measure in determining Walmart has reported that
VID-19 struck and 22 million recessions. It also assesses higher gas and food costs
Americans were suddenly many other data points, in- have forced its shoppers
thrown out of work. Infla- cluding gauges of income, to reduce their purchases
tion, meantime, remains employment, inflation-ad- of discretionary spend-
near its highest level in four justed spending, retail sales ing such as new clothing,
decades, though gas costs and factory output. It puts a clear sign that consum-
and other prices have heavy weight on jobs and er spending, the leading
eased in recent weeks. In- a gauge of inflation-adjust- driver of the economy, is
flation is still so high that de- ed income that excludes weakening. The nation’s
spite pay raises many work- government support pay- largest retailer, Walmart
ers have received, Ameri- ments like Social Security. has reduced its profit out-
cans’ purchasing power is Yet the NBER typically look and said it would have
eroding. The pain is being doesn’t declare a reces- to discount more items like
felt disproportionately by sion until well after one has furniture and electronics.q
lower-income and Black begun, sometimes for up to And the Fed’s rate hikes
and Hispanic households, a year. have helped send the av-
many of whom are strug- DO TWO STRAIGHT QUAR- erage 30-year fixed mort-
gling to pay for essentials TERS OF ECONOMIC CON- gage rate surging above
like food, clothes, and rent. TRACTION EQUAL A RECES- 6%, compared with below
Federal Reserve Chair Je- SION? 3% a year ago, thereby
rome Powell has under- That’s a common rule of making homebuying in-
scored that the central thumb, but it isn’t an official creasingly unaffordable.q