When most people first encounter the term recession, they are told it is defined as two consecutive quarters of negative GDP growth seen in measurements by the Bureau of Economic Analysis (BEA). The truth however is slightly more complicated. In reality a recession is officially determined to be present when the National Bureau of Economic Research decides it has seen a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The official determination is somewhat more subjective, and includes examinations of income, employment, personal consumption, and industrial production.

This is outlined here, on the BEA website, where it says,

In general usage, the word recession connotes a marked slippage in economic activity. While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy. The NBER recession is a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth. Therefore, while negative GDP growth and recessions closely track each other, the consideration by the NBER of the monthly indicators, especially employment, means that the identification of a recession with two consecutive quarters of negative GDP growth does not always hold.

While it is generally agreed upon that the economy is slowing, in large part due to inflation-driven demand destruction, and the predicted interest rate hikes by the Fed will slow things further, there is one area of the economy which is not slowing to any significant degree, and that is the jobs market.

So while GDP contracted 1.6% in Q1, and the Atlanta GDPNow model presently predicts a 1.2% contraction in Q2, and that is two consecutive quarters of negative GDP growth, the picture is not so clear as you zoom out to the jobs numbers.

The last jobs report by the BLS on Friday showed the economy had added 372,000 jobs, which was well above the 250,000 predicted by economists.

Total employment was 151.98 million, up 21.467 million from the low in April 2020, and just slightly below its pre-pandemic norm of 152.504 million. Meanwhile unemployment remained low at 3.6% and the layoff rate was a very low 0.9% in May. Even the unemployment claims remain similar to those seen during times of economic expansion, at 235,000 for the week ending July 2nd. And on Wednesday more BLS data showed there were 11.25 million job openings, and just 5.95 million unemployed in the same period.

So even as GDP was declining and the stock market was falling, and everything on the numbers looked just like a recession, the job market added 2.74 million jobs, it was exceptionally tight, and nobody was being left out of work and destitute.

Wells Fargo economists wrote last week, “If the economy is in a recession, employers have not seemed to notice.”

Meanwhile in recent recession calls, the NEBR has specifically said, “In recent decades, the two measures we have put the most weight on are real personal income less transfers and nonfarm payroll employment.”

In addition, BEA data shows real personal income, less transfers climbed to a record annualized rate of $14.5 trillion in May.

Another BLS datapoint is the index of aggregate weekly payrolls, which combines jobs, wages, and hours worked, into a single metric to get a rough idea of the spending capacity of the total workforce. It has increased 0.6% month over month in June to 172.4, which is a record high, and 9.4% above where it was one year ago. Before the pandemic, the yearly growth rate for it was about 5%.

The main danger with good jobs numbers however is, as everyone has plenty of money, they begin buying, increase demand, and that causes prices to increase, in effect, giving everyone the practical version of a salary cut since what they are making will suddenly buy less. Given the Federal Reserve has pledged to do whatever is necessary to tame inflation, this means one could expect the Federal Reserve to act until it had reduced all the good news in job numbers.

One bright spot regarding that, is hourly earnings have slowed their increases in June. In March, hourly earnings increased 5.6% year over year, in April it was 5.4%, in May it was 5.3%, and in June it was 5.1%. As that number comes down, so do the forces driving the inflationary pressures which are driving the Fed to act.

And while the number of job openings are still high, they too have declined from the March high of 11.9 million.

Unfortunately none of that is the clear and convincing evidence the Fed has demanded to see, indicating inflation is diminishing, before it will slow the rate in interest rate increases. But it may mean that evidence is coming sooner than analysts would think, and things may not be as bad as everyone is pricing into the market.