The U.S. economy shrank for the second straight quarter, sparking fears that the United States is in recession territory.

The Bureau of Economic Analysis, a government agency that provides industry statistics, on Thursday released its latest report showing gross domestic product — the total value of goods and services produced in a country annually, also known as GDP — decreased at a rate of 0.9% in the second quarter of 2022, after falling 1.6% in the first quarter. The report is an advance estimate with updated data expected in August, but it paints a bleak picture of the country’s economic trajectory.

Consumer spending — which makes up a large portion of the overall economy — grew by only 1%, down from the 12% increase from the same period last year. Spending on physical goods fell, while spending on services increased slightly.

Residential and commercial construction dropped 14% and 11.7%, respectively, largely due to increasing mortgage prices that are the result of interest rate hikes by the Federal Reserve.

What is a recession?

The rule of thumb is that a recession is two consecutive quarters of declining GDP.

According to this definition, the U.S. is already in a recession, but it’s not always that simple. That’s why the National Bureau of Economic Research — the agency responsible for officially declaring a recession — generally doesn’t say a recession occurred until after it’s over.

Dr. Christian vom Lehn, associate professor of economics at Brigham Young University, said the rule of thumb is useful to economists, but the measure doesn’t capture every variable in the economy, such as unemployment rates, supply chain inventories and impacts of global events like wars or pandemics.

A recession is “a period of temporary decline observed throughout the economy,” vom Lehn told Deseret News. Two quarters of decline may not mean there is a recession, if the losses are only in a few sectors while the rest of the economy remains steady or is growing.

A typical recession is often correlated with high unemployment rates and low inflation, or even falling prices, vom Lehn said. That is not the case in the U.S.: the unemployment rate was 3.6% in June, and inflation has reached levels not seen in four decades

“For a host of reasons, the economy is in a very weird situation, due to pandemics and wars and everything going on,” he said. “I think the fact that we are not seeing this kind of a decline in employment or a corresponding rise in unemployment, or in other measures of consumer spending … leads people to say, ‘This doesn’t really feel like a typical recession,’ even though that rule of thumb is very often correct.”

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So are we in a recession or not?

The White House published a recession explainer last week ahead of Thursday’s GDP report.

“While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle,” said the White House document.

Treasury Secretary Janet Yellen acknowledged that the economy may be slowing down, but told NBC’s “Meet the Press” on Sunday that “this is not an economy that’s in recession.”

Skeptics look at these explanations as attempts to reassure an electorate that is doubtful of the country’s trajectory amid sagging approval numbers.

The Biden administration’s attempts to stave off fears of recession aren’t unfounded or incorrect, vom Lehn noted, but “trying to downplay the reality that many people are feeling uncomfortable with where the economy is at right now might be a little misleading.”

What to do in a recession

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Does it matter whether we are in a recession or not? “Having a discrete definition of today we’re in a recession versus today we’re not, doesn’t really do anything except for maybe cause more anxiety or worry or concern,” vom Lehn says.

Vom Lehn suggests people keep in mind that recessions are an average measure of the economy as a whole, and don’t guarantee wage or job loss for everyone. Impacts will vary, so people should make investment decisions based on personal finances, not simply national trends.

Although some economic recoveries are slower than others, recessions are a normal, temporary part of the business cycle. In the long term, investments or retirement funds will likely rebound.

“Overreacting to a temporary event can backfire and lead to long-run financial loss if you’re not careful,” vom Lehn said.

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