The big economic question

It's not about whether the US is in a recession. It's about whether the economy will deteriorate soon.

The latest G.D.P. the numbers - suggesting the economy has contracted in each of the past two quarters - have intensified the debate over whether the US economy has fallen into recession.

Today's bulletin will briefly explain this debate. But I also want to explain why some of this discussion is semantic and irrelevant to most Americans. The more important question is simpler: are the problems in the economy likely to worsen in the coming months or will the situation stabilize and perhaps even improve?

This question has tangible effects on people's lives. It can influence your decisions about buying a house or car, finding a new job, and being careful about your spending. There is no clear answer, but there is useful information.

It is useful to start with a basic framework: the country's economic decision makers < em class="css-2fg4z9 e1gzwzxm0 ">want the economy to weaken, but not too much.

The main economic problem of recent months has been an overheated economy, with greater demand for goods than their supply, resulting in the highest levels of inflation since the early 1980s. To bring inflation down, the Federal Reserve raised interest rates , which encourages families to spend less money and, in turn, causes prices to stop rising so quickly.

“We have high inflation and a historically high inflation,” Cecilia Rouse, chair of the White House Council of Economic Advisers, told me and other reporters yesterday. "In order to bring inflation down, we understand that the economy needs to calm down."

But it's very difficult for Fed officials to find the right balance. They are trying to bring about a big enough drop in spending to reduce inflation, but not a big enough drop that companies will cut jobs, unemployment will rise, and the economy will fall into a vicious circle.

When people wonder if the economy is entering a recession, the underlying tangible question is whether this kind of vicious cycle is beginning. So far, he doesn't seem to have. Yet the risks for the remainder of 2022 are substantial.

There is no single definition of a recession. An informal definition is two consecutive quarters of contraction in gross domestic product (a measure of the output of the economy). With the G.D.P. of yesterday. report, economics has reached this standard.

Most economists, however, do not like the two-quarter definition. They consider it too narrow because it is based on a single economic indicator. Any indicator, even GDP, can sometimes be misleading.

Right now, GDP. may exaggerate the problems in the economy for a few technical and temporary reasons involving global trade and business stocks, said Mark Zandi, chief economist at Moody's Analytics. Another broad measure of the economy, known as gross domestic income, has not declined in recent months and tends to be less volatile than initial GDP estimates. (Yesterday's figure was an early estimate, and the government will revise it - possibly even to a positive figure - as new information comes in.)

The volatility of the initial GDP. numbers is why economists generally prefer a different definition of recession. The National Bureau of Economic Research, a private, nonprofit organization, appoints a small standing committee...