Page 9 - NBIZ October 2022
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There are problems with that rule of thumb, however.   ca pac ity utilization was at 80.3 percent in July, the second
        For one, GDP is frequently revised as additional data   highest level of the past ten years. Those metrics do not
        becomes avail able. The Bureau of Economic Analysis (BEA)   suggest an economy that is in recession.
        origi nally reported the economy shrank 0.9 percent in
        Q1/22 only to revise that to 0.6 percent in later reports.
        Better data on consumer spending and inventory invest-               TOTAL U.S. CAPACITY UTILIZATION
        ments forced the revision. As more data is available, the
        decline could shrink further or be revised away entirely.   85
        Years from now, the BEA may still be revising Q1/22 GDP.
           Secondly, negative outliers can overshadow strength     80
        else where in the economy. For example, government
        ex pend itures are part of the GDP calculations. Several   75

        fed eral programs designed to assist businesses and       % of Capacity  70
        individ uals during the pandemic expired or tapered off
        in Q1/22, dramatically reducing government’s role in the   65
        economy. That contributed to the negative GDP calcula-
        tions in Q1.                                               60



                TOTAL U.S. GOVERNMENT EXPENDITURES, $ BILLIONS       Source: Board of Governors of the Federal Reserve System




                                                               A Better Measure
                                                                  Most economists rely on a definition developed by the
                                                               Business Cycle Dating Committee of the Na tion al Bureau
                                                               of Eco nomic Research to determine if the nation is in a
                                                               recession. According to the committee, a recession is:
                                                                   . . . a significant decline in economic activity
                                                                   that is spread across the economy and that
                                                                   lasts more than a few months.
                                                                  Specifically, the committee looks for declines in personal

                                                               in come, employ ment, consumer spending, retail sales,



                      * Seasonally adjusted annual rate        whole sale trade, and industrial production when deter-
                   Source: U.S. Bureau of Economic Analysis    mining if the U.S. is in recession. They also con sider the
                                                               depth, duration, and diffusion of any declines as well.
           BEA also subtracts the value of imports from exports   The most current data for the NBER metrics suggest the
        in calculating GDP. Over the last ten years, this has   economy is expanding, albeit more slowly than earlier in
        typically subtracted 0.5 to 1.5 percent from growth.   the year. Job growth remains healthy, consumers continue
        But imports were extremely heavy earlier this year as   to spend, and the U.S. industrial production is trend ing up.
        businesses re built inventories. BEA estimates net imports   Income growth has slowed but not declined. Additionally,
        subtracted 3.2 percent from GDP growth in Q1/22. If    retail and wholesale sales have slipped only marginally.
        trade had been at a normal level, GDP growth would have
        likely been positive.
           And lost in the original GDP report were signs of               SELECTED NBER RECESSION INDICATORS
        strength in the economy. Consumer spending grew 2.7                  Percent Change from Previous Year
        percent in Q1, business investment was up 7.3 percent,
        and residential real estate investments expanded 2.1 per-         Industrial   Personal   Personal   Retail
        cent at seasonally adjusted, inflation-adjusted, annualized      Production  Income*  Expenditures*  Sales*
        rates. These performances suggest an expanding, not a   Jul ’22   3.90       1.26       2.24        1.65
        contracting economy.
           Furthermore, relying solely on GDP to assess the     Jun ’22   4.02       1.32       1.71       -0.42
        health of the U.S. economy ignores other metrics like job   May ’22  4.44    1.83       2.28        0.17
        growth and industrial capacity utilization. For example,
                                                                                 * Adjusted for inflation
        the nation added 3.5 million jobs through August of this   Sources: Board of Governors of the Federal Reserve System, U.S. Bureau of
        year, almost double the annual growth rate. And industrial    Economic Analysis, Federal Reserve Bank of St. Louis
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