Is the U.S. in recession? How do we know when a recession has begun?

Six months of contraction is a long-held informal definition of a recession. Yet, nothing is simple in the post-pandemic economy

The U. S. government on Thursday updated its estimate of the country’s economic performance in the April-June quarter and confirmed what it had reported last month: That the economy shrank for two straight quarters.

Six months of contraction is a long-held informal definition of a recession. Yet nothing is simple in the post-pandemic economy. Growth may be negative, but the job market is strong. The economy's direction has confounded Federal Reserve policymakers and many private economists since growth screeched to a halt in March 2020 as COVID-19 struck and 20 million Americans were suddenly thrown out of work.

Even as the U. S. economy shrank over the first half of this year, employers added 2.7 million jobs — more than in most entire years before the pandemic struck. In July, the economy added over a half-million more jobs. The unemployment rate sank to 3.5%, a half-century low. Robust hiring and exceedingly low unemployment aren’t consistent with a recession.

While most economists — and Fed Chair Jerome Powell — have said they don’t think the U. S. economy is in recession, some analysts still predict that an economic downturn will begin later this year or next.

Either way, inflation remains near its highest level in four decades, though gas costs and other prices have eased in recent weeks. Inflation is still so high that despite pay raises many have received, Americans’ purchasing power is eroding. The pain is being felt disproportionately by lower-income and Black and Hispanic households, many of whom are struggling to pay for higher-cost essentials like food, gas and rent.

Compounding those pressures, the Fed is jacking up interest rates at the fastest pace since the early 1980s, thereby magnifying borrowing costs for homes and cars and credit card purchases. As a result, regardless of whether a recession has officially begun, Americans have soured on the economy.

So how, exactly, do we know when an economy is in recession? Here are some answers to such questions: