White House econ advisors go all-in: Two quarters of shrinking GDP isn't necessarily a recession

This feels like “Putin price hike” all over again in that it (a) has some truth to it and (b) will totally fail to spare Democrats from blame.

Ed wrote earlier about the White House trying to get out in front of what looks to be a dismal GDP report on Wednesday. The economy shrank by 1.6 percent in the first quarter of 2022; if Wednesday’s report confirms that it shrank again during the second quarter, the R-word will be used. And that’s the last thing Democrats need three months out from a midterm in which the president is already sitting in the mid-30s in job approval.


A White House blog post published a few days ago stressed that a “recession” turns on more than just two consecutive quarters of negative GDP growth. It’s a holistic judgment made on the basis of multiple indicators like consumer spending, unemployment, and so on. No one reads White House blog posts, though (except those of who have to do so for a living), so Team Joe dispatched its economic brain trust to the Sunday shows to pre-spin Wednesday’s report. Their message: No matter how bad it is, it’s not a recession!


Here’s Brian Deese stressing that it’s not a recession — but that Biden understands that working people are hurting.

Here’s Janet Yellen stressing that it’s not a recession — although the economy is certainly slowing down.

Here’s Jared Bernstein stressing that it’s not a recession — albeit prices are too high. Bernstein also went the extra mile to explain that the White House has no role in whether a recession is formally declared or not. That’s up to the NBER, and they’ll do so only after they’ve had many more months of data to digest.


Isn’t that why we have the “two quarters of negative GDP” rule of thumb in the first place, though? Americans can’t wait months to make financial decisions until they have a formal ruling from the NBER about whether the country has been experiencing a recession. They need to know in the moment. If the economy shrinks two quarters in a row, odds are high that storms are ahead. And as Ed said, the psychological impact of Wednesday’s report is apt to become a self-fulfilling prophesy even if, under the holistic definition, we’re not yet technically in a recession. Consumers will adjust their spending in response; businesses will trim their sails on hiring. Whether two quarters of negative growth merely reflects a recession or causes one is an interesting chicken-and-egg question but largely irrelevant to the Democrats’ midterm chances.

Nouriel Roubini is a well-known economist who’s earned the nickname “Dr. Doom” for his pessimistic predictions. Bear that in mind for this corker, which he unleashed this morning:

Economist Nouriel Roubini said the US is facing a deep recession as interest rates rise and the economy is burdened by high debt loads, calling those expecting a shallow downturn “delusional.”

“There are many reasons why we are going to have a severe recession and a severe debt and financial crisis,” the chairman and chief executive officer of Roubini Macro Associates said on Bloomberg TV Monday. “The idea that this is going to be short and shallow is totally delusional.”…

“This time, we have stagflationary negative aggregate supply shocks and debt ratios that are historically high,” said Roubini, who is nicknamed Dr. Doom for some of his dire predictions. “In previous recessions, like the last two, we had massive monetary and fiscal easing. This time around we are going into a recession by tightening monetary policy. We have no fiscal space.”


How many seats might the out-party be expected to gain in a midterm if unemployment is 10 percent and the president’s job approval is zero?

As feeble as the White House’s efforts are to convince voters that we’re not in a recession, I think it’d be political malpractice if they didn’t try. One could argue that it’s pointless, as the economic reality will be amply clear by Election Day even if Biden’s team convinces voters to withhold judgment for another month or two. And they’re likely to fail in that effort anyway per what Jim Geraghty had to say this morning

The reason it will be so difficult for Biden to explain that this isn’t really a recession is because in the American public’s mind, a recession is a de facto synonym for “economic bad times.” With inflation at 9.1 percent, Americans are feeling an intense financial squeeze because everything is more expensive now. The price hikes aren’t gradual; they’re sudden and noticeable. And these aren’t price hikes that a person notices for once-in-a-while purchases, like a new home purchase or a new car purchase. These are noticeable price hikes in everything they buy, particularly groceries and gasoline.

There’s no persuading voters that these aren’t bad times economically irrespective of whether they technically qualify as a recession within the NBER’s parameters.


But Team Joe does have to try, simply because of what I said earlier about the potential for a self-fulfilling prophesy. The more consumers pull back, the more likely a recession becomes. If the White House can make voters believe that a “soft landing” from Fed rate hikes is still in the offing, the eventual landing may be a bit softer than it otherwise would have been. It’s not a matter of trying to “message” their way out of a midterm debacle, I don’t think, as that debacle is already baked in.

I’ll leave you with Larry Summers in his now customary role of reality-checking happy talk from Biden advisors. It happened with inflation last year, it’s happening with the prospect of a recession now.

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