The director of the nonpartisan Congressional Budget Office added his voice Thursday to those economists who say it’s unclear if the economy has hit a downturn, despite posting two straight quarterly drops in growth.
“The U.S. economy shows signs of slowing, but whether the economy is currently in a recession is difficult to say,” wrote CBO Director Phillip Swagel in a letter to Sen. Lindsey Graham (R-S.C.).
“It is possible that, in retrospect, it will become apparent that the economy moved into recession sometime this year. However, that is not clear from data that were available at the beginning of August,” Swagel added.
Swagel’s comments are the latest salvo in the ongoing debate over the state of the U.S. economy, which polling shows most Americans see as in bad shape, regardless of the actual numbers. Republicans hope to use that dissatisfaction to ride to power in the November midterms, while Democrats have tried to convince people either the economy is not so bad or that its main problem, inflation, is due to outside factors.
Swagel’s comments echoed the cautious tone of another of Washington’s leading economic lights, Federal Reserve Board Chairman Jerome Powell. After the Fed raised interest rates again on July 27, Powell told reporters he did not believe the U.S. was in a recession.
“And the reason is there are just too many areas of the economy that are performing too well,” Powell said, pointing in particular to the 3.6% unemployment rate.
Powell also said that while the Fed wants to cool the economy to slow inflation, it does not necessarily want a recession in order to do that.
“It is possible that, in retrospect, it will become apparent that the economy moved into recession sometime this year.”
– CBO Director Phillip Swagel
The widely agreed-upon official arbiter of recessions is the National Bureau of Economic Research, an organization of academic economists. The NBER defines a recession as a broad-based decline in economic activity that lasts more than a few months. It usually does not make a call on whether the economy peaked, and thus fell into a recession — or saw a trough, and began a recovery — until months or even years after the fact.
Republicans have pointed instead to the popular definition, which is at least two straight quarters of negative economic growth, a condition met when the Bureau of Economic Analysis said July 28 the economy shrank at a 0.9% annual rate in the second quarter.
The assertion the U.S. is in or near a recession has been a Republican calling card this year, especially as Democrats gear up to try to pass a big bill to stop climate change, reduce drug prices and modestly trim the budget deficit.
“What country in their right mind raises taxes as we are entering, or already entered, a recession? Most countries have been lowering their business taxes to make sure we don’t have higher prices going forward. This doesn’t make any sense,” Rep. Kevin Brady (R-Texas) told Fox Business Wednesday.
Swagel said Thursday there’s ammo for both camps in the data.
“Some key metrics indicate a decline in economic activity as the first half of this year progressed, whereas others indicate continued growth, though generally at a slower rate than previously” he wrote.
Both GDP and the Fed’s measure of industrial production have shown weakness, with the latter in June posting its first drop since December 2021.
Still, Swagel said incomes and personal consumption have remained healthy, as has the job market, even if it has come off of its post-pandemic highs.
“In June 2022, the unemployment rate was 3.6 percent (unchanged since March and near its prepandemic low) and there were about 1.8 job vacancies for every unemployed worker (one of the highest readings in the near 22-year history of this series though down from its highest level of 2.0 in March),” he wrote.
Republicans have often complained the CBO, meant to be an impartial arbiter of budget and economic questions before Congress, is not sympathetic enough to their economic views, especially in terms of the impact of tax cuts on the economy.
But Swagel has a background of working for Republican causes, in both the White House and the Treasury Department in the George W. Bush administration and during a stint at the conservative American Enterprise Institute. He also was chosen for his current post by the chairmen of the House and Senate Budget Committees in 2019, when the Senate was controlled by Republicans and the House by Democrats.