More than half of Americans – 56% to be exact – believe the United States is in a recession, according to a new Harris Poll.   And all of those people are wrong.

The classic definition of a recession is two consecutive quarters of negative growth – measured by GDP – gross domestic product.  We haven’t had any negative quarters in GDP since a slight downward blip in the first quarter of 2022.

Although growth was slow in the first quarter of this year – only 1.3%, it followed a growth spurt of 3.4% in the last quarter of 2023.  And for the current quarter, the Fed estimates that growth will be 3.1%.

Clearly, we are not in a recession by any official measure.  And other statistics confirm that assessment,

Unemployment is a key feature of recessions.  Yet, although the most recent report shows a rise to 4%, the economy continues to create an unprecedented number of new jobs.  And the unemployment rate has consistently been at the lowest levels in half a century.

There used to be an old joke about the economy:  A Recession is when my neighbor loses his job, and a Depression is when I lose my job!

Since the U.S. economy is not yet in a recession, either by official definition or by popular sentiment indicators, how can that negative perception of the economy be explained?

Recession History

Perhaps it occurs because America hasn’t seen a severe recession since the financial crisis of 2008-2009.  Now that was a recession, with spiking unemployment, and negative GDP.   The more recent fearful decline amidst the shutdown of Covid was brief, and quickly reversed.

The pain of that financial crisis recession is now more than 16 years old.  If you were 22, just graduating from college during that recession, you likely found it tough to get a job.  But now, anyone under 40 has lived in economic times (minus the pandemic) when technology has created new opportunities and job growth

Most Millennials and the older Gen Z cohort have never faced really tough times.  Their roles in the tech revolution practically guaranteed them high-paying jobs.  Their services were in demand.  But A-I may not be so job-friendly in the future.

A Recession Is Coming

That’s an economic forecast we can make for sure.  We just don’t know when it will arrive. Traditional signs and indicators have been stretched like a rubber band, causing wrong forecasts to abound.

For example, it used to be true that whenever short-term rates exceeded long-term rates a recession would follow within one year.  (Think about the current 5.4% on 6-month T-bills and the 4.3% rate on 10- year Treasury notes.)  That “inversion” has now lasted nearly 2 years!

Many economists suggest that the signals have been distorted by the huge amount of money created to deal with Covid – not only the individual stimulus bills passed by both parties, but also the excessive government spending and the debt our country took on to mitigate the pandemic.

But we haven’t completely repealed economic cycles.  And when recessions arrive, they are typically a surprise – catching most people unaware.  The burden of consumer debt becomes unbearable when you’ve lost your income, and bankruptcies soar.

Redefining Recession?

By now you may be thinking we need a different measure of recession – something based on the level of financial pain that most Americans actually are enduring.   The same Harris poll showed that 70% of Americans feel squeezed by rising prices and that inflation is their highest concern.

That’s not surprising since — despite the fact that the rate of inflation has slowed in the past two years — the level of prices remains significantly higher than in recent memory.  Everything from items on the grocery shelves to car insurance premiums has dramatically and measurably increased in cost.  Budgets are squeezed and the pain is real.

That’s why the Fed is being so careful about its plans to slow inflation without causing a recession.  If they turn this recession “perception gap” into a lesson in reality, the pain will be even more shocking to a generation that is overloaded with debt and complacent about their employment.

And that’s The Savage Truth.