Recently, the US consumer confidence index recorded its lowest level since 2011. Many Americans say they hear a lot of negative economic coverage rather than positive or relatively neutral coverage. Many Republican and Democratic officials told pollsters that the U.S. is currently in a recession.

So, is the economy really in recession? Barron’s published an article that the answer is not yes. People are not happy about inflation, which is already at 8.3%, very close to the highest level since 1982. But high inflation is not a recession , a recession is when people’s economic activity drops significantly. At present, economic activity is not only not showing a downward trend, but is booming.

Many countries judge the economic recession cycle by two consecutive quarters of negative GDP growth. But in the United States, the official arbiter of recessions is a private, nonprofit research organization called The National Bureau of Economic Research.

So what does the NBER use to determine whether there has been a significant drop in economic activity? The most critical indicator is whether gross national output has declined. U.S. GDP has grown rapidly since the beginning of 2021, averaging 4% per year over the past five quarters, and the goods and services market is booming .

In addition, using the latest data on U.S. gross domestic product, NBER found that U.S. national output improved slightly in the first quarter of 2022. Therefore, there is currently no reason to think that economic growth is turning negative. In fact, domestic demand in the United States remains strong, and the economic growth rate in the second quarter is likely to continue.

Another important criterion is labor market data, including unemployment rate, employed population, job vacancy rate, etc., among which the employment rate is particularly critical . At present, the U.S. unemployment rate is only 3.6%, which is close to the lowest level in 50 years, and almost every unemployed worker has two vacancies, the highest proportion since the data, and the labor market is also thriving .

The peak of the business cycle is a sign of the onset of a recession , and in order to determine the precise month when the turning point arrives, the NBER also looks at additional indicators, including real personal savings, real personal consumption expenditures, real sales and industrial production. The data for these indicators also shows that there is no current recession . While the odds of a recession at some point in the future remain, the odds of a recession in the U.S. this year are far less high than one might think.

Will America’s High Inflation Cause a Recession?

There is a view that inflation and recession are diametrically opposed states. After the United States fell into recession due to the new crown pneumonia epidemic in early 2020, the Federal Reserve actively adopted an expansionary monetary policy, and the White House and Congress formulated an expansionary fiscal policy, which transferred more wealth to ordinary households and increased household disposable income. These factors not only brought a strong recovery to the US economy, but also pushed up inflation.

Macroeconomic stimulus may be excessive, given the inflation that followed. Fortunately, in less than two years, the United States managed to bring the unemployment rate below 4%. At least things are much better now than the Great Recession of 2007-09. The fiscal stimulus was too little and too short, and it took nine years to bring unemployment below 4%.

And inflation is more likely to encourage consumers to buy more , not less . Inflation does not refer to a one-time rise in prices, but a continuous upward trend in price levels. When inflation rises, households and companies tend to increase purchases in response to the possibility that future commodity prices will be higher than they are today.

Not all current inflation can be attributed to expanding demand. Disruptions to supply chains, as well as Russia-related increases in global oil and other commodity prices, have also pushed up inflation.

To be sure, in a sense, high inflation could lead to a recession. Sooner or later the Fed will have to raise interest rates, dampen demand and bring inflation down to normal levels, but it will be difficult to achieve this without a recession. That’s the main reason why a recession is more likely than usual sometime in the next two years.

Interest rates still have a long way to go. In 2022, the Fed’s monetary policy is still seen as accommodative. For now, economic activity is likely to continue to expand.

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