Janet Yellen denies US recession as GDP drops for 2nd straight quarter

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Treasury Secretary Janet Yellen doubled down on her claim that the US economy is not in a recession — despite the fact that the latest GDP report showed its second straight quarterly decline.

Yellen said experts “should avoid a semantic battle” when discussing the US economy, even as the White House on Thursday scrambled to push back against the widely held view among economists that two straight quarters of GDP declines are the definition of a recession.

“Most economists and most Americans have a similar definition of recession — substantial job losses and mass layoffs, businesses shutting down, private-sector activity slowing considerably, family budgets under immense strain,” Yellen argued during a press conference on Thursday afternoon.

“In sum, a broad-based weakening of our economy. That is not what we’re seeing right now when you look at the economy,” she added. “Job creation is continuing; household finances remain strong. Consumers are spending and businesses are growing.”

Commerce Department data showed real GDP declined by 0.9% in the second quarter after falling 1.6% in the first quarter. The report came in below the expectations of economists, who had projected muted growth of 0.3%, and exacerbated fears that the Federal Reserve’s efforts to tame inflation have resulted in a recession.

Yellen pointed to a historically tight US labor market, continued upticks in spending by consumers and businesses and ramped-up industrial output as signs the economy is still on the right track.

Janet Yellen pointed to a strong labor market and consumer spending.
REUTERS

She added that the second-quarter decline was “driven primarily by change in private inventories, a volatile component by GDP” that shaved 2% off the quarterly reading.

“Overall, with a slowdown in private demand, this report indicates an economy that is transitioning to more steady, sustainable growth,” Yellen said. “This path is consistent with one that eases inflationary pressures while maintaining the labor market progress of the past 18 months.”

Jerome Powell
Fed Chair Jerome Powell said elements of the economy are still too strong to declare a recession.
AFP via Getty Images

Yellen acknowledged an uncertain outlook for the US economy in the months ahead as officials navigate the effects of the Russia-Ukraine war, ongoing lockdowns in China and lingering supply chain difficulties.

The Treasury secretary noted the US economy has added more than 1.1 million jobs over the last three months, while past modern-era recessions excluding the COVID-19 pandemic began with job losses over the same period.

“Growth is slowing globally, inflation remains unacceptably high and it’s this administration’s top priority to bring it down,” Yellen added.

Yellen’s remarks came one day after Fed Chair Jerome Powell also dismissed the idea that the US economy was in recession.

President Biden
President Biden also rejected the notion of a recession.
Getty Images

“I do not think the US is currently in a recession and the reason is, there’s just too many areas of the economy that are performing too well,” Powell said at a press conference after the Fed hiked its benchmark interest rate by another 0.75%.

Earlier in the week, Yellen told NBC that she would be “amazed” if the National Bureau of Economic Research, a key economy tracker, formally declares a recession.

Yellen spoke shortly after President Biden denied a recession was underway while discussing the GDP results. The White House touted the revival of a Democrat-backed spending bill that has been rebranded as the Inflation Reduction Act — with $433 billion in new spending, offset by a theoretical $739 billion in tax increases on wealthy Americans and businesses.

“Coming off of last year’s historic economic growth — and regaining all the private-sector jobs lost during the pandemic crisis — it’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation,” the president said in a written statement earlier in the day.

“But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure.”

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