The U.S. Bureau of Economic Analysis published its second estimate for June quarter’s GDP growth last week. The growth rate is estimated to be a decline of 0.6%, which is the initial estimate of 0.9%, and is better than the 1.6% drop in the first quarter.
Keep in mind that the published growth rate takes the change in GDP from one quarter to the next and essentially multiplies it by four to get a yearly result. This means that the 0.6% decline (actually 0.58% but rounded up) was a drop in GDP of 0.15% from the March to June quarter.
While the press and many people use two consecutive quarters of GDP declines to signal a recession that is too simplistic of an definition. The organization that is looked to determine recessions is the National Bureau of Economic Research or NBER, which has been involved with analyzing peaks and troughs in the economy since at least 1961 and was founded in 1920. In fact NBER determined that there was a two-month recession from February to April 2020 due to the Covid pandemic.
When looking at many of the various factors NBER uses in determining when a recession begins it is pretty clear that the U.S. economy is not in a recession.
What is a recession?
NBER’s traditional definition of a recession is that it is, “a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee’s view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.” (The bolding is mine since they are critical to defining a recession).
Why the definition is not two quarters
NBER includes in its FAQ or Frequently Asked Question section that it does not subscribe to the two consecutive quarters definition due to, “First, we do not identify economic activity solely with real GDP, but consider a range of indicators. Second, we consider the depth of the decline in economic activity. The NBER definition includes the phrase, “a significant decline in economic activity.” Thus real GDP could decline by relatively small amounts in two consecutive quarters without warranting the determination that a peak had occurred.”
It also adds, “Third, our main focus is on the monthly chronology, which requires consideration of monthly indicators. Fourth, in examining the behavior of production on a quarterly basis, where real GDP data are available, we give equal weight to real GDI. The difference between GDP and GDI—called the “statistical discrepancy”—was particularly important in the recessions of 2001 and 2007–2009.”
The past two quarters have seen small declines in GDP
March quarter’s GDP declined by 1.6% and the second estimate for June quarter’s GDP was a drop of 0.6%. Keeping in mind that these estimates are based on quarter-to-quarter estimates the actual drops were 0.4% and 0.15%, respectively. These do not seem to fit NBER’s criteria of depth.
U.S. GDP 3Q 2018 to 2Q 2022
U.S. Bureau of Economic Analysis
Trade and Inventories accounted for the GDP to show declines
In the March quarter GDP was shown to have dropped by 1.6%. When digging into the details:
Net Exports component showed a large negative impact of 3.2% along with Inventories adding a negative impact of 0.35%
When these are taken into account GDP would have shown growth of 2%
And keep in mind that the main driver of the economy, personal spending, saw a 1.2% increase.
In the June quarter while:
Net Exports added 1.4% to the growth rate
Inventories had a negative impact of 1.8%.
Netting these two from the 0.6% decline would mean GDP only fell 0.17%
And this small decline was more than offset by government spending having a 0.32% negative impact
And personal spending still held up, showing 0.99% growth for the quarter.
Real contributions to GDP growth in the second quarter
U.S. Bureau of Economic Analysis
Personal Income has increased every month this year
One factor NBER uses in its analysis is Real Personal Income. It increased every month this year with it growing 0.2% in July (not shown in the graph below).
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
