Treasury Secretary Janet Yellen says the U.S. economy isn’t in recession despite Thursday's GDP report that showed growth declined for the second-straight quarter.
Instead, Yellen told reporters on Thursday U.S. growth is shifting down after expanding at a breakneck pace coming out of the pandemic.
“This report indicates an economy that is transitioning towards more stable, sustainable growth,” Yellen said. “Clearly we are seeing a slowing in the economy and in demand that’s appropriate if necessary to transition from rapid growth in recovery...We need to see a slowdown and we are seeing that.”
Yellen said the last several quarters showed a significant slowdown in the pace of spending in the economy, pointing to a fiscal drag with government spending subtracting from growth. The secretary highlighted consumer spending that remained positive, though this data, too, shows signs of a slowdown.
In the case of a recession, Yellen said she would expect substantial job losses, businesses shutting down, private sector activities slowing considerably, and family fortunes under immense strain.
“That is not what we're seeing right now,” Yellen said. “When you look at the economy, job creation is continuing, household finances remain strong, and consumer spending and businesses are growing.”
Secretary Yellen’s comments come after GDP — the broadest measure of economic activity — declined at an annualized rate of 0.9% in the second quarter. This followed a 1.6% decline in activity during the first three months of this year.
The second quarter decline was partly attributed to a huge drag from inventories, while a drop in residential and nonresidential fixed investment, and government spending also contributed to this fall-off.
Two consecutive quarters of declining economic growth is a commonly accepted definition of recession, though Yellen and other administration officials have taken pains in recent weeks to note recessions are only formally called by the National Bureau of Economic Research.
The NBER defines a recession as, "a significant decline in economic activity that is spread across the economy and that lasts more than a few months."
Jared Bernstein, economic advisor to President Biden, foreshadowed Yellen's commentary in an interview with Yahoo Finance Live on Thursday morning. Bernstein said that while the U.S. is not in a recession now, slower growth should be expected after the breakneck pace in 2021.
“As the Federal Reserve steps on the brake to slow the economy down and fulfill its role as the first and foremost inflationary fighting institution, we've expected to see slower GDP growth,” Bernstein said. “But the key is how are jobs faring? How's the labor market faring? How's consumer spending? All of those remain in solid territory.”
Federal Reserve Chairman Jay Powell, for his part, also does not believe the U.S. is in a recession, pointing to what he called "remarkable" strength in the labor market.
“I do not think the U.S. is currently in a recession right now,” Federal Reserve Chair Jerome Powell told reporters during a press conference on Wednesday. “I would point to the job market. Growth is slowing though. But job growth has averaged 450,000 per month — that’s remarkably strong. It doesn’t make sense that the economy would be in recession with this happening.”