“Big Short” investor Michael Burry ripped the Biden administration on Monday after officials claimed a US recession is “unlikely” even if the economy shrinks for a second consecutive quarter.
Burry accused the White House of attempting damage control ahead of the closely watched release of the second-quarter GDP report later this week.
While two straight quarters of GDP decline are widely viewed as a sign of recession, the White House pushed back on that definition in a recent blog post that drew the hedge fund chief’s ire.
“The White House would like you to redefine a recession as one in which consumers are not borrowing on credit cards to pay for inflation, and neither is the labor force inadequate for the size of the economy,” Burry tweeted. “GDP out Thursday, not that there’s anything wrong with that.”
Another poor GDP reading will fuel growing pessimism about the state of the US economy during a period of decades-high inflation and tightened monetary policy at the Federal Reserve. The economy contracted by 1.6% in the first quarter — its first decline since the early days of the COVID-19 pandemic.
But in a blog post last week, the White House argued the notion that two straight quarters of GDP decline indicates a recession is “neither the official definition nor the way economists evaluate the state of the business cycle.”
“Instead, both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data—including the labor market, consumer and business spending, industrial production, and incomes,” the blog post said.
“Based on these data, it is unlikely that the decline in GDP in the first quarter of this year—even if followed by another GDP decline in the second quarter—indicates a recession,” the post added.
The White House added that the US labor market is still “one of the strongest” on record and that both real spending and household savings remain strong.
Treasury Secretary Janet Yellen also downplayed the recession risk this week while pointing to the strong labor market as a sign of economic health.
Burry, the head of Scion Capital Management, has repeatedly expressed bearish views about the economy in recent months.
Earlier this month, he warned of a higher-than-normal “floor” for long-term inflation due to lingering supply chain issues, geopolitical tensions and ongoing blue-collar labor shortages.
Burry also predicted a “bifurcated labor market” in which white-collar workers experience layoffs while blue-collar workers “remain in short supply.” Labor shortages have been a key contributor to inflation that hit 9.1% in June.