Is the U.S. economy in a recession? Real gross domestic product contracted at an annual rate of 1.6% in the first quarter of 2022, according to a recent estimate by the Bureau of Economic Analysis. The Federal Reserve Bank of Atlanta estimates that the economy contracted by a seasonally adjusted 1.2% in the second quarter. If those estimates turn out to be correct, the U.S. economy will have contracted for two consecutive quarters, the technical definition of a recession.
This recession—if that’s what it is—isn’t like other recessions. According to the latest employment report issued by the Bureau of Labor Statistics, the economy added 372,000 new jobs in June, with the unemployment rate remaining stable at 3.6%. Over the past 12 months, according to the same report, average hourly earnings increased by 5.1%, another sign of a tight labor market. What explains a full-employment recession? The answer lies in long-term developments in the U.S. labor force.