A recession may have actually started 'the end of last year': Former Fed official

The U.S. economy could have entered a recession before the calendar turned to 2022.

"I wouldn't be surprised if they [the National Bureau of Economic Research] actually push the start of the recession to the end of last year," Dreyfus Mellon Chief Economist Vincent Reinhart, who spent spent 24 years in various research roles at the Federal Reserve, said on Yahoo Finance Live (video above). "So we might wind up being in one of the longer recessions on record."

The National Bureau of Economic Research (NBER) draws on six primary data sources to make that official determination of a recession, which the private nonprofit research organization defines as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months."

The Bureau of Economic Analysis (BEA), which is seen as a more unofficial recession indicator, said last week that second-quarter GDP fell 0.9% as consumers and businesses pulled back on their spending due to high inflation. This marked the second-straight quarter of economic contraction after GDP in the first quarter declined by 1.6%. Two consecutive quarters of contracting GDP is generally considered a "technical recession."

Recessions are 'always messy'

Recent profit warnings from big-name retailers such as Walmart and Target, lackluster consumer confidence readings and weakening manufacturing data lend fuel to the recession chatter.

"There are lots of reasons to think the recession won't be deep," Reinhart said. "Recessions purge excesses in the economy. We haven't built up a lot of excesses. But they're always messy. We're going to learn something about somebody's balance sheet. We don't know who that is. And we don't know what we'll learn. But it won't be pleasant. That happens every time."

The NBER has not declared that the U.S. economy has met the nuanced threshold for an official recession declaration, and any declaration generally lags the experience of a recession.

"The NBER's definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months," the outfit said on its website. "In our interpretation of this definition, we treat the three criteria — depth, diffusion, and duration — as somewhat interchangeable. That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another."

Some of Reinhart's peers on the Street aren't sold that these conditions have been achieved.

“To us, the main things we're focusing on are ongoing strength in the labor market,” global market strategist at JP Morgan Elyse Ausenbaugh said on Yahoo Finance Live last week. "Looking into components of GDP, the fact that consumers are still spending in real terms and that things like credit card delinquencies remain at all-time lows is an encouraging sign that, although the window is narrowing, we're not yet in that recessionary-type scenario that we're watching for that could potentially play out.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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