GDP Come Today. The Recession Debate Won’t End.

Even if the economy does show a second consecutive quarter of negative growth, a recession isn’t inevitable. Here, the Port of Long Beach in California earlier this year.


Allison Zaucha/Bloomberg

The U.S. economy likely grew slightly in the second quarter as consumer spending slowed amid rising prices and a slump in new home sales. Don’t expect the debate over recession to fade, however.

Economists expect gross-domestic product grew at a 0.3% annual rate between March and June, consensus expectations show, a sluggish pace that nonetheless suggests a turnaround from the first quarter’s 1.6% decline. But economists’ estimates vary significantly: The closely watched Federal Reserve Bank of Atlanta’s GDPNow forecast, for example, shows an expected 1.2% decline between the first and second quarters on an annualized basis.

A second consecutive quarter of GDP declines would ring alarm bells and fuel concerns that the U.S. has already dropped into a recession, given that two quarters of negative growth has historically been one criterion of a formal downturn. But the National Bureau of Economic Research, the official arbiter of U.S. recessions, looks at a broader set of factors in making its determination and is watching for “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

Given the current strength of the U.S. labor market and healthy business and consumer balance sheets, most economists agree that even if data shows the economy shrank again for the second straight quarter, the key elements of a recession have not yet been met.

“But ‘yet’ is the operative word,” says Diane Swonk, chief economist with KPMG. “Because momentum is slowing, and we’re getting closer to the edge. And it’s hard, when you get close to the edge, to not fall into the canyon.”

The top concern for economists ahead of the second-quarter GDP data release is that slowdowns in the most recent period are likely to be more worrisome and show more fundamental weakness than the factors that dragged down growth at the start of the year. 

Between January and March, much of the decline was due to one-off factors including a surge in imports, which count as a subtraction in the calculation of GDP, and a decline in the pace of inventory restocking. But the elements that better reflect the economy’s momentum, including consumer spending and private investment, remained strong.

That is likely to have shifted in the second quarter, when sluggish growth—or potential contraction—was driven more by fundamental weakness, including consumer spending softening and business fixed investment slowing.

“There’s less of a way to explain away the weakness in Q2,” says Tim Quinlan, senior economist with



Wells Fargo
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“This feels to be like an economy that’s actually losing momentum.”

For the Federal Reserve, some softening is both expected and necessary in order to rein in inflation. Fed Chairman Jerome Powell said Wednesday that the central bank is watching what it sees as “a marked slowing in the second quarter that is fairly broad.” But he added that the Fed wants to see demand running below potential for a sustained period in order to “give inflation a chance to come down.”

Plus, given that the numbers being released Thursday will be revised twice before they’re final, “you tend to take first GDP reports, I think, with a grain of salt,” Powell said. “But of course, it’s something we’ll be looking at.”

Write to Megan Cassella at megan.cassella@dowjones.com

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