Are We in a Recession? What Experts Are Saying

Amid soaring inflation, the prospects of the year getting worse economically have been growing with experts warning that the U.S. is already in a recession.

While a recession is technically a contraction of gross domestic product (GDP) across two consecutive quarters, some experts say such a definition is too simplified.

A government report has shown there was a 1.6 percent decrease annually in real gross domestic product (GDP) in the first quarter of 2022, with factors pointing to further negative growth in Q2.

According to the criteria of the National Bureau of Economic Research's (NBER) Business Cycle Dating Committee, a recession is a significant decline in economic activity for longer than a few months, which in itself marks a downturn.

Shoppers in Times Square
People walk around Times Square, on June 16, 2022 in New York, United States. Inflation measured by the consumer price index went up by 8.6 percent in May from the previous year. Getty Images

The committee, which has the sole authority to declare the start and the end of a recession, takes into account aspects such as consumer spending, industrial production, employment and real personal income levels.

"We think we are in a recession," Cathie Wood, CEO of asset management firm Ark Invest told CNBC on Tuesday as she said that the U.S. is already in an economic downturn, and inflation has been sharper due to supply chain disruptions and geopolitical risks.

"We think a big problem out there is inventories," she told the program Squawk Box. "The increase of which I've never seen this large in my career. I've been around for 45 years."

Inflation measured by the consumer price index went up by 8.6 percent in May from the previous year—the fastest increase since 1981.

Meanwhile, stocks have had their worst start to the year since 1970, as concerns grow over how curbing inflation will affect economic growth. The benchmark S&P 500 index fell 20.6 percent in the last six months and other major U.S. indexes also dropped.

The economist Peter Schiff warned that the United States is facing an economic crisis worse than the Great Recession of 2008. He tweeted that President Joe Biden "will soon be forced to admit that America's red hot economy has actually been in a recession all year."

One model has pointed to a recession already having arrived, using its broad definition. While the first Q2 estimate will not be available until July 28, the Atlanta GDPNow model is forecasting roughly a -1 percent decline in GDP for Q2, taking into account data for April and May that has already been reported, as well as data from June that is coming in, Forbes reported.

However, Bill Adams, chief economist for Comerica Bank, told Newsweek that the "jury is still out" on whether there will be negative growth in the second quarter, given the range of nowcasts.

He said that despite negative predictions from outfits like Moody's, there are still predictions high above zero, such as the 3.87-percent growth forecast by the St Louis Fed. Also, unlike during previous recessions, labor demand is still extremely high.

"I think there's much more labor demand in other parts of the economy than is typical of a recession," he said. Workers losing jobs in sectors such as technology, retail and mortgages "are likely to find new employment much faster than in a typical downturn.

"That's interrupting the vicious cycle of recession where falls in employment lead to falls in consumer spending, which causes other businesses to cut headcounts."

He said that it was unlikely for NBER to declare a recession without a decline in employment and "we don't have a decline in employment in the data in hand right now."

"I think we would need to see a couple of months of job losses or big downward revisions to previously reported data for this to meet the formal definition of a recession," Adams said.

Newsweek has contacted the White House for comment.