Now we know. The economy did in fact contract for two quarters in a row, falling a modest 0.9 percent in the second three months of the year after a 1.6 percent drop in the first quarter.

That does not mean, claims the White House, in a ludicrous effort to spin the bad news, that we are in a recession. No siree; it just means that, well, we’ve had two down quarters (which historically has always meant a recession).

That the White House would adopt this bury-your-head-in-the-sand approach is understandable. President Biden assumed the Oval Office amid a vibrant, broad recovery; damaging policies like his war on fossil fuels and excess federal spending have now spurred inflation and torched our growth.

But it was Federal Reserve Chairman Jerome Powell’s comments the day before the GDP release that attracted our attention and rang alarm bells. Powell, answering reporters’ questions on the heels of a 75 basis-point rate hike, also demurred when asked if the U.S. was in a recession.

No, he said, “I do not think the U.S. is currently in a recession. And the reason is, there are just too many areas of the economy, performing too well. I would point to the labor market in particular.” 

Which makes one wonder whether Powell reads the news.

Yes, the labor market has been strong, but there is every indication that we are at an inflection point, and the next direction is down.

Over the past three months, there has been a slow but steady increase in the number of companies that have slowed or stopped hiring. There have also been quite a few that have announced letting workers go. Remember: Layoffs were virtually non-existent just six months ago. Employers were struggling to find workers; few dared decrease their ranks.

That has changed, albeit slowly. There is no question that it is still hard to find qualified employees. Over the past year, as millions have retired and millions more have declined to go back to work, partly because they were supported by overly-generous federal and state benefits, managers everywhere scrambled to add staff.

Today, the panic is gone. Recent soundings from groups like the National Federation of Independent Businesses show that inflation, and not the hiring squeeze, is the main issue for small firms. In a recent survey, nearly one third of small employers said that to offset rising prices they were reducing employee-related costs like pay, hours worked or…the number of employees. 

Softening demand in various sectors has led to businesses pausing their hiring and to layoffs. Ecommerce companies like car dealers Carvana and Vroom, which saw demand soar during the pandemic and since throttle lower, have laid off people.  

Compass, an online real estate powerhouse, has cut its employee count about 10 percent, adjusting to a higher mortgage rate environment. GoPuff, a grocery delivery app, is also reducing its headcount. Other companies that benefited from a locked-down environment, like Pelaton and Netflix, have also laid off people.

Big Tech is also responding to a possible downtick in demand, with Twitter, Apple and Alphabet all announcing a slowing of hiring. Meta, reacting just recently to a revenue drop, said it would reduce its headcount; Amazon declared it was overstaffed at some warehouses and Shopify laid off 10 percent of its workforce. 

It isn’t just tech firms that are letting workers go. Ford Motor Company has announced that it plans to lay off as many as 8,000 salaried employees, General Motors, which had prepared to accommodate 1 million job applications as it geared up to produce electric vehicles, has now instituted a hiring freeze.

In biotech, the news is similar. Invitae has announced it will let go 1,000 employees and CytomX Therapeutics, a San Francisco-based company working on cancer cures, is shrinking its staff by 40 percent.

On Wall Street, what was just months ago a hiring frenzy has definitely cooled. Goldman Sachs, where revenues dropped 23 percent in the last quarter, said it will slow hiring and reinstate annual performance reviews. Black Rock has said it would reduce recruitment, and Morgan Stanley said layoffs are on the table if business conditions worsen.

So where does Powell see that super-tight job market? In the rear-view mirror. Job gains have been robust, to be sure, but now they are declining. In June, the U.S. added a healthy 372,000 jobs. But that was down from 384,000 in May, 714,000 in February and 504,000 in January.

Meanwhile, the four-week moving average of unemployment claims has been trending higher. Last week, claims surprised economists by jumping to the highest level since last November. Continuing claims are also rising.

The Federal Reserve System, with its $5 billion budget and tens of thousands of employees, is meant to be ahead of the news, not behind it. This Fed has been spectacularly late to the party on anticipating and diagnosing inflationary pressures, and even more sluggish in responding to soaring prices. There were many red flags that the Fed missed, including that consumers were flush with government largesse and buoyed by rising stock and home prices.

For sure, the pandemic threw all economic calculations and expectations off course. And it is true that having GDP growth turn negative when hiring is still positive is unusual. Top economist Ed Hyman, who has not been predicting a recession, acknowledged the strange mix of data, concluding, “We have never seen anything like this.”

But now the Fed needs to tune into what is happening in the real world — and in particular how its efforts to crush inflation may be weakening not only demand but also labor markets.

It is good news that Powell indicated flexibility going forward, and, as usual, indicated that the Fed would be driven by data.

Otherwise, it could drive this country’s economy straight into a ditch. The recent record is not encouraging.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.