Page 9 - NBIZ October 2022

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
NBIZ ■ October 2022 9