How an observer sees the recession

Yes, no recession.

These are the words of President Biden. I don’t think we’ll — God hopes — I don’t think we’ll see a recession. It was repeated by Brian Deeds, director of . Treasury Secretary Janet Yellen, meanwhile, claimed that the economy had “entered a new phase of its recovery focused on achieving steady and stable growth.”

These claims face what everyone sees: negative GDP “growth” in the first two quarters of 2022. Negative two-quarters GDP is a common definition of a recession.

So what are you going to believe? Are GDP data and politicians in denial?

The White House would rather wait for a recession declaration from the National Bureau of Economic Research than deal with it here and now. The Bureau, a private organization, has become the arbiter of business cycle dating for unknown reasons. “It emphasizes that recessions are accompanied by a significant drop in economic activity that spreads across the economy and lasts for months or more,” the bureau said. Factors include “real personal income less transfers, non-farm employment, employment as measured by household surveys, real personal consumption expenditure, price-adjusted wholesale and retail sales, and industrial production.” .

This is all fine except for one small detail. The Bureau’s approach is retroactive. In declaring recessions and recoveries, we will “wait until sufficient data are available to avoid the need for significant revisions to the business cycle chronology. We will wait until we are certain that a recession has occurred.”

The practical effect of waiting for absolute confidence is that the station will not call until the recession is well advanced. did not. The 2020 Covid recession was not recognized until after it was over.

On the one hand, there are many signs of a recession. The yield curve is completely inverted, with short-term rates exceeding long-term rates. An inverted yield curve almost always accompanies a recession. New unemployment claims are so high that they predict a recession. Oil price spikes have occurred in five of the last six recessions he has. The Conference Board’s leading economic index fell for the fourth month in a row. This “indicates an upcoming US recession,” the commission said.

These factors do not predict the length or depth of a recession. But we have a president and a chairman of the Federal Reserve who have completely misjudged the risk of inflation in 2021. Seeing this duo of him raise interest rates and raise taxes in the face of his two quarters of negative growth cannot inspire confidence.

Jeffrey Scharf is the founder of Act Two Investors LLC, a registered investment advisor. Please contact jeffrey@acttwoinvestors.com..