The “two negative quarters” myth

As I get older, I become increasingly frustrated with having to repeatedly push back against widely held myths. One of those myths is that a recession occurs when there are two consecutive negative quarters for real GDP growth.  That’s not how the NBER determines recessions.  (One obvious example is 2001, which saw a recession but did not see two consecutive negative quarters.)

Some people are now making a big deal of the fact that the Atlanta Fed’s GDP tracker is currently predicting a negative 2.1% real GDP growth rate in the second quarter. (Following a negative 1.6% growth rate in Q1.) Even if that forecast pans out, it doesn’t mean the US economy was in recession throughout the first half of 2022—an absurd claim—rather it suggests that six-month changes in RGDP are not a reliable indicator of business cycles.

Not only was the economy not in recession in early 2022, it was experiencing the most overheated boom in many decades.  Consider that payroll employment soared by roughly 2.5 million during the first 5 months of 2022, roughly three times the normal rate of growth.  That’s some of the fastest job growth we’ve ever seen. And companies were still desperately short of workers.

That’s not to say the US economy might not currently be entering a recession.  Perhaps the payroll employment data will soon turn down.  It’s even possible that a recession began a month ago.  But the US economy certainly wasn’t in recession this past winter.