This week’s GDP number may show a shrinking economy. But that doesn’t equal recession.
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This week is going to be a big week for economic news. On Wednesday, the Federal Reserve will tell us how much it’s hiking interest rates this time. On Friday, we’ll get June’s numbers for personal income, consumer spending and the Fed’s preferred measure of inflation. But on Thursday, we’ll get what some people think of as the most important piece of data: gross domestic product.
All these numbers will come in as experts search for signs of whether this economy is headed into a recession.
While GDP can provide clues about where the economy is going, there’s also a lot it can’t tell us.
“GDP alone is not how you determine a recession,” said Austin Clemens at the Washington Center for Equitable Growth.
The National Bureau of Economic Research — which determines when recessions begin and end — takes a much broader view of the economy, Clemens said. Right now, the picture is cloudy.
“We have high inflation, but we have a very strong job market. We have — it looks like — negative GDP growth, but also still pretty robust consumer spending.”
That strong job market is a huge factor in whether people feel comfortable spending. Not only has the economy been adding jobs, but there are still over 11.25 million unfilled positions out there.
“So there’s a lot of room for people to jump back into work, and none of that is showing up in the headline figures for GDP,” said economist Megan Greene, a senior fellow at Brown University.
GDP can also be distorted by volatile parts of the economy. For instance, businesses built up record amounts of inventory over the last two quarters. Companies are unlikely to keep building inventories at that pace, according to Sarah House, senior economist at Wells Fargo.
“So even as we see companies continue to replenish their stocks, the fact that they’re doing so at a slower pace equates to a drag in terms of the overall rate at which output is expanding,” House said.
Bottom line: It’s possible that Thursday’s GDP report will show a contracting economy, but if that happens, take it with a huge grain of salt.
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