‘Absolutely sure’ US economy is not in recession, economist says

By Matt Egan, CNN Business

The American economy is losing steam and is vulnerable to sinking into a recession but it’s not in one yet, according to Moody’s Analytics chief economist Mark Zandi.

“This is a slowdown. We’re not in recession, certainly not during the first half of this year,” Zandi told CNN in a phone interview on Thursday. “This one I am absolutely sure on. We created way too many jobs.”

However, the risk of a recession in the near future is elevated.

“The outlook is cloudy,” Zandi said, adding that he pegs the risk of a recession over the next 12 months at roughly 50/50. “We need to catch a break here to avoid recession. We do need a bit of luck.”

New numbers released on Thursday show gross domestic product, the broadest measure of economic activity, contracted for the second quarter in a row.

Every period since 1948 with back-to-back quarters of negative GDP has coincided with a recession. However, that is not how economists at the National Bureau of Economic Research defines an official recession. Instead, they look for a broad-based decline that includes weakness in jobs, retail sales and manufacturing.

“It’s a great rule of thumb. It’s worked in the past, invariably since World War II. But it’s still a rule of thumb,” Zandi said of the two quarters of negative GDP.

Recessions typically involve surging unemployment across the economy and that is simply not happening today. The unemployment rate is 3.6%, near historic lows.

Zandi said in the current economy, a recession would translate to a loss of 3 million to 4 million jobs.

GDP figures are also subject to significant revision months and even years later.

“A few years from now I wouldn’t be surprised if one or both of these quarters turn positive after revision,” Zandi said.

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