When pressed by NBC host Chuck Todd over the weekend, Yellen said that “growth is slowing” — even though output appears to be turning negative for a sustained period of time. The remarks come ahead of the Bureau of Economic Analysis publishing an advance estimate of second quarter Gross Domestic Product (GDP) growth later this week — a reading that is expected to show that the economy shrank at a 1.6% annualized pace from April to June.
Because the economy likewise contracted at a 1.5% rate in the first quarter, the United States may have experienced two consecutive quarters of negative growth — meeting the rule-of-thumb definition for a recession. Yellen — who admitted last month that she was “wrong” about the “path that inflation would take” — dismissed such claims.
“This is not an economy that’s in recession,” she told Todd. “But we’re in a period of transition in which growth is slowing and that’s necessary and appropriate and we need to be growing at a steady and sustainable pace. So there is a slowdown and businesses can see that and that’s appropriate, given that people now have jobs and we have a strong labor market.”
Yellen also pointed to low joblessness as an indicator of strong economic performance. Although unemployment remains at 3.6% — a significant improvement from the 14.7% level seen in April 2020 — labor force participation has not recovered from pre-recession levels, contributing to worker shortages that increase expenses for businesses and prices for consumers.
Arguing that “you don’t see any of the signs” of a broad-based economic contraction, Yellen referred to “solid” consumer spending figures. Although a report from the Department of Commerce shows that national retail sales grew by 1% last month, the Consumer Price Index (CPI) rose 1.3% over the same period — implying that higher price levels played a significant role in the higher spending rather than true gains in economic activity.
Indeed, the White House — which repeatedly insisted in recent weeks that the nation is “stronger economically than we have been in history” — has been laying out its economic case ahead of the Bureau of Economic Analysis growth report.
“While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle,” the White House said in a Thursday blog post. “Instead, both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data — including the labor market, consumer and business spending, industrial production, and incomes. Based on these data, it is unlikely that the decline in GDP in the first quarter of this year — even if followed by another GDP decline in the second quarter — indicates a recession.”
As President Joe Biden’s approval rating continues to plummet, news of a recession would serve to worsen Democrats’ chances in the upcoming midterm elections. CNBC’s All-America Economic Survey, for example, recently showed a meager 30% of Americans approving of Biden’s economic performance, and Republicans are positioned to gain up to 70 seats in the House of Representatives.