U.S. Treasury officials say overall economic strength belies weak GDP

By David Lawder

WASHINGTON (Reuters) – U.S. Treasury officers mentioned on Monday general earnings and jobs figures steered the financial system was in good well being and never in a recession, even when information due this week exhibits gross home product falling for a second consecutive quarter.

The U.S. Commerce Division is scheduled to report second quarter GDP on Thursday, and economists polled by Reuters forecast a acquire of simply 0.5%, with 28% of the 78 respondents predicting a contraction.

After a 1.6% annualized drop in first-quarter GDP, a damaging second quarter end result would seemingly immediate critics of President Joe Biden to declare a U.S. recession below a conventional shorthand measure utilized by economists, journalists and analysts — two consecutive quarters of decline.

However Ben Harris, Treasury assistant secretary for financial coverage and Neil Mehrotra, deputy assistant secretary for macroeconomics, wrote that gross home earnings (GDI), which measures mixture earnings — wages, enterprise income, rental and curiosity earnings — continued to rise within the first quarter at a 1.8% annual tempo, whereas GDP fell.

They mentioned whereas second quarter GDI information is not going to be obtainable till the tip of August, some GDI elements, together with worker compensation, proprietors earnings and rental earnings, present will increase for the quarter. Tax receipts additionally recommend robust company earnings development, the officers added.

“To get an correct real-time learn on the financial system, economists must look throughout a number of measures of financial exercise to deduce the true tempo of development,” they wrote, including that GDI has recovered considerably sooner than GDP over the pandemic interval.

“On the entire, our view is that the information strongly recommend we aren’t at present in a recession, and that this yr’s first quarter development was seemingly favorable when taking a look at earnings, employment, and general manufacturing,” they added.

Whereas first quarter GDP, which solely counts ultimate items, was damaging, they mentioned a 2% enhance in actual gross output for the interval was the results of the financial system producing extra “stuff,” however extra of this went into intermediate items not counted in GDP.

Their feedback got here a day after U.S. Treasury Secretary Janet Yellen mentioned a second quarter GDP contraction wouldn’t sign recession due to underlying job market power, demand and different indicators of financial well being.

“Recession is broad-based weak point within the financial system. We’re not seeing that now,” she mentioned.

Defining recessions will not be an easy enterprise. The non-public analysis group thought-about the official arbiter of U.S. recessions additionally seems at a broad vary of indicators, together with jobs, industrial manufacturing, spending and incomes. A recession has by no means been declared with out a lack of employment, and U.S. hiring particularly stays robust.

(Reporting by David Lawder; Enhancing by Sam Holmes)