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Recession Signs Nowhere to Be Found, Says Treasury Secretary Janet Yellen

Isaac Nuriani    |
Jul 29, 2022
  • Janet Yellen says recession isn’t in sight
  • More negative GDP, other gloomy numbers seem to disagree
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As inflation started rising – and kept rising – throughout 2021, there was no shortage of influential people who greeted surging prices with a shrug of the shoulders. Among their ranks was Treasury Secretary Janet Yellen.

In March 2021, Yellen said there’s “a small risk” of inflation” but that it would be “manageable.”[1] Three months later, Yellen again minimized the risk posed by inflation, saying that she expected “to see higher inflation rates, maybe around 3%. But I personally believe that this represents transitory factors.”[2]

Fast forward to the last day of May 2022, when Yellen made an appearance on CNN’s “The Situation Room” with Wolf Blitzer. Blitzer took the opportunity to challenge the Treasury secretary on her 2021 inflation projections. During the interview, Yellen admitted that she “was wrong then about the path that inflation would take.”[3]

It has been only two months since Ms. Yellen’s mea culpa on CNN, and the Treasury secretary is back with another curious declaration about the economy. During a recent interview on NBC’s “Meet the Press,” Yellen said the economy is showing no signs of recession.

Really? No signs?

It’s one thing to say the economy isn’t in recession right now – which she also did. That’s concerning enough, considering we found out just a handful of days following Yellen’s “Meet the Press” appearance that gross domestic product (GDP) did, in fact, drop for a second consecutive quarter, placing the nation in what’s called a technical recession.[4] But what is even more troubling, in my view, is for the Secretary of the Treasury to effectively say the economic skies remain blue even as a variety of recession-like economic data has been rolling in consistently.

We’re going to dig more deeply into what Secretary Yellen said and see if we can make some sense of it. But we also are going to discuss something else: The importance of retirement savers questioning what they hear about the economy from government officials – particularly when the data appears to say something significantly different.

We all would like to believe that politicians have our best interests at heart. But I think it’s fair to say that’s not always the case. And even when they’re earnest, they simply can be wrong.

Misinformation – regardless of the reason for it – can be costly to you and your family. It’s important, therefore, that you see the relevant data as it is and make your own decisions about what you think is going to happen and how best to prepare for that.

But first things first: Let’s look more closely at what the Treasury secretary had to say about the prospects of recession and go from there.

Yellen: “Strong” Labor Market and “Solid” Consumer Spending Suggest All Is Well

Those who managed to catch Janet Yellen’s appearance on “Meet the Press” with Chuck Todd last week might be feeling pretty upbeat about the overall health of the nation’s economy. The Treasury secretary had a lot of good news, including that the labor market is in great shape.

“The labor market is now extremely strong,” Yellen said. “Even just during the last three months, net job gains averaged 375,000. This is not an economy that’s in recession.”[5]

Also near the top of Yellen’s list of reasons we shouldn’t see a recession is strength in consumer spending. “Consumer spending remains solid,” Yellen said during her “Meet the Press” appearance.

Referring to recession signals more generally, Yellen said that “you don’t see any of the signs now. A recession is a broad-based contraction that affects many sectors of the economy. We just don’t have that.”

In that moment, Secretary Yellen was clarifying for Chuck Todd that the “official” definition of recession is more complex than the “consecutive-quarters-of-negative-GDP” standard that may at times tell an incomplete story.

That more formal definition of recession to which Yellen was referring is a product of the National Bureau of Economic Research (NBER), which also decides when recessions begin and end in the U.S. According to the NBER’s definition, “a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.”[6]

To Yellen’s point, that standard is much broader and more interpretive, demanding a careful analysis of many variables before a recession is declared. And the NBER likely won’t say for months whether a recession is unfolding right now.

Nevertheless, what has me scratching my head is the notion that we haven’t seen any signs that a recession is looming. Set aside for the moment what we now know about the economy entering a technical recession. There have been a number of worrisome signs of economic downturn lurking about for many months now – some of which are contained within the very areas of the economy Ms. Yellen cites as proof of economic strength.

Key Measures Could Be at Odds With Claims of a Thriving Economy

Appearance of Labor Market Strength May Be Deceiving

As for the strong labor market that Yellen and others point to as signs of a robust underlying economy: Regular readers of this blog know I have issues with that assertion. A recent Augusta Precious Metals economic update discusses the fact that while job numbers have been trending up over the last few months, individual employee numbers are dropping. This suggests growth in the number of Americans who are taking on multiple jobs to get by, which is hardly a sign of economic strength. Additionally, there’s that pesky labor force participation rate. Labor force participation remains at its lowest point in 45 years.[7]

Also, it should be noted that first-time employment claims have been trending upward recently. They right now are at their highest level in about eight months.[8]

In other words, the argument that the labor market is organically strong may not be quite as sound as Janet Yellen says it is.

Economist: Consumers Relying on Savings and Credit

I mentioned that Secretary Yellen also pointed to the strength in consumer spending as proof the nation is traveling a path of recession avoidance. Sure enough, retail sales rose 1% in June, which is a marked improvement over the 0.1% decrease recorded in May. But there are a couple of details to keep in mind about this apparent consumer viability.

For one thing, retail sales figures are not adjusted for inflation, which climbed 1.3% last month. That means real sales in June were slightly negative.

“The 1.0% [month-over-month] rise in retail sales in June isn’t as good as it looks, as it mainly reflects the boost to nominal sales values from surging prices,” wrote Andrew Hunter, senior U.S. economist at Capital Economics.[9]

And there are some real indications the spending we are seeing could be rooted largely in the use of savings and debt.

Credit card volume at the nation’s biggest lenders soared 20% in the second quarter.[10] More generally, we know that household debt has been rising significantly, as well, reaching nearly $16 trillion in the first quarter of the year. That’s $1.7 trillion more than it was before the pandemic.[11]

Accumulated savings appears to be another source of all this spending. A recent Forbes Advisor survey says that two out of three Americans have turned to savings to keep spending in the current sea of inflation. As a matter of fact, the same survey notes that 31% of Americans have either substantially or completely drained their savings on behalf of that effort.[12]

The current reliance on savings and debt to make cash registers ring isn’t lost on economists, who say the party is nearing an end.

Jay Bryson, chief economist at Wells Fargo, expects to see “outright declines” in consumer spending by September as households reach their savings and credit limits.

“Consumers have held the line pretty well in terms of spending,” Bryson recently told CNBC. “But they’ve brought down their savings rates and they’ve increased credit card debt. Those things aren’t sustainable in the long run.”[13]

Further underscoring consumer dependence on savings and credit is the degree to which real wages have been held underwater by inflation over the past year. Workers have seen year-over-year nominal wage gains of 5.1% through June 2022, but real wages fell 3.6% over the same period thanks to inflation.[14]

PMI Drops Below 50

There are more overt signs of economic slowdown, as well. One of the most recent – and concerning – is the decline in the S&P Global Flash US Composite PMI (Purchasing Managers’ Index) Output Index from a measure of 52.3 in June to 47.5 in July. A reading below 50 represents economic contraction. The July figure is the metric’s first contraction since June 2020, the height of the pandemic.[15]

The index is based on a survey of roughly 800 U.S.-based manufacturing and service companies. It is designed to give a relatively real-time indication of the health of the private sector economy using inquires that track such variables as sales, employment, inventories and prices.

And nothing in the assessment of the data by Chris Williamson, the chief business economist at S&P Global Market Intelligence, is reassuring:

The preliminary PMI data for July point to a worrying deterioration in the economy. Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis, with the survey data indicative of GDP falling at an annualized rate of approximately 1%.[16]

Again, forget for a moment that the nation has entered a technical recession on the basis of GDP numbers alone. Given what we’ve discussed here as well as the array of other unfortunate-looking data that has been making regular headlines for months now, how reasonable is it for anyone – especially the Secretary of the Treasury – to suggest we’ve not seen even signs of recession up to this point?

Which brings me to my final point.

My View: Trust Your Own Good Judgment When Assessing the Economy

For my part, I’ve always said that it’s prudent to remember that the Federal Reserve chair and the Treasury secretary – co-managers of the world’s largest economy – are political appointees. It’s good to keep in mind that what you’re being told about the state of the economy has the potential to reflect at least a measure of political bias.

Before I go any further, let me be clear: This is not a partisan political rant. What I’m suggesting is the importance of looking past what political figures and potentially deceiving data – such as jobs numbers – might say about the economy and finding the real data that’s out there instead.

And let’s be honest about this: What does it really cost well-paid government officials – on either side of the political dividing line – to be wrong about the economy? At least when meteorologists miss the boat on their projections, the rain still falls as much on them as it does on the rest of us. But it never seems like highly compensated government employees ever really get the short end of the stick when it comes to missed forecasts about the economy. Their jobs seem as secure as before, whereas your own financial circumstances can change drastically.

In the end, Janet Yellen could be proven correct. Not only might it be the case that we aren’t in an NBER-standard recession currently, it’s possible we could sidestep one altogether. But whether she’s right or wrong isn’t the point. The point is to avoid unquestioning acceptance of what the members of a political regime – any political regime – might say about the condition of the economy, particularly when there are indications they may not be right. I heartily encourage you to look a little closer at the data yourself and rely on your own good judgment. In my opinion, that’s the least we can do for the benefit of ourselves and those who are counting on us.


[1] Tony Czuczka and Christopher Condon, Bloomberg.com, “Yellen Says U.S. Inflation Risk Remains Small, ‘Manageable’” (March 14, 2021, accessed 7/28/22).
[2] Rachel Siegel, Washington Post, “Yellen says inflation could reach 3 percent this year as recovery continues” (June 5, 2021, accessed 7/28/22).
[3] Kevin Liptak and Paul LeBlanc, CNN.com, “Treasury secretary concedes she was wrong on ‘path that inflation would take’” (June 1, 2022, accessed 7/28/22).
[4] Jeff Cox, CNBC.com, “GDP fell 0.9% in the second quarter, the second straight decline and a strong recession signal” (July 28, 2022, accessed 7/28/22).
[5] NBCNews.com, “Meet the Press – July 24, 2022” (July 24, 2022, accessed 7/28/22).
[6] National Bureau of Economic Research, NBER.com, “Business Cycle Dating” (accessed 7/28/22).
[7] St. Louis Federal Reserve Economic Data, “Labor Force Participation Rate” (accessed 7/28/22).
[8] Maria Paula Mijares Torres, Bloomberg.com, “US Jobless Claims Fall Slightly, Hold Near Eight-Month High” (July 28, 2022, accessed 7/28/22).
[9] Jeff Cox, CNBC.com, “Retail sales rose more than expected in June as consumers remain resilient despite inflation” (July 15, 2022, accessed 7/28/22).
[10] Jennifer Surane, Bloomberg.com, “Consumers Go Down Market to Keep Racking Up Credit Card Debt” (July 22, 2022, accessed 7/28/22).
[11] Megan Leonhardt, Fortune.com, “American households have almost $16 trillion of debt, but researchers say there’s a silver lining” (May 10, 2022, accessed 7/28/22).
[12] Natalie Campisi, Forbes.com, “2 Out Of 3 Americans Say They’re Blowing Through Savings to Cope With Inflation—Do This Instead” (June 13, 2022, accessed 7/28/22).
[13] Mike Winters, CNBC.com, “‘Ugly’ inflation numbers make a recession more likely in 2022, economist says” (July 20, 2022, accessed 7/28/22).
[14] Bureau of Labor Statistics, “Real Earnings – June 2022” (July 13, 2022, accessed 7/28/22).
[15] S&P Global, “S&P Global Flash US Composite PMI” (July 22, 2022, accessed 7/28/22).
[16] Ibid.

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