You may have heard a few weeks ago that two-thirds of economists predicted we’re heading into a recession by this time next year. With headlines like "Rate hikes and recession are still in the cards" and "Danger ahead: The U.S. economy has yet to face its biggest recession challenge," the media is sounding alarm bells – but the truth is far more complicated than headlines or economists themselves let on.

Today, we’d like to set the record straight on the rumors of recession and provide a new lens for viewing the economy – one that centers everyday Americans instead of unreliable metrics.

Let’s start with what we know: Every recession in the 20th and 21st centuries has followed predictable metrics: Spending drops, unemployment rises, and manufacturing slows down. But because we’re two and a half years into a pandemic that grounded the global supply chain to a halt, many of the signals that economists rely on to take the economy's temperature are misleading or wildly erratic.

For example, while retail spending stayed flat last month, overall spending spiked by 10% in the same time. Unemployment numbers are currently very low, but many employers are entertaining the idea of layoffs. And several states have seen manufacturing numbers plunge, even as manufacturing numbers elsewhere surge ahead of expectations.

Those mixed signals let experts find whatever outcome they want to see. If you examine the economy with rising prices in mind, it looks like we're in a recession. But if you measure an economy by looking at the labor market, we're about as far away from a recession as we've been in decades.

Unfortunately, when economists sound alarm bells about recession, it can become a self-fulfilling prophecy. The Federal Reserve is likely to continue raising interest rates as an outdated tool to try and fight inflation, which will slow the economy and cause millions of Americans to lose their jobs. Plus, if Americans continue to believe that a recession is coming, they will curb their spending in case they are laid off. But because consumer spending drives nearly 70% of America’s economic output, a reduction in spending could ironically cause the very layoffs that consumers fear.

The fact of the matter is that we live in uncertain times, and nobody can predict whether or not a recession is imminent. Instead of trying to make sense of unreliable monthly metrics, the Federal Reserve, elected leaders, and economists should keep one economic indicator in mind as their North Star: the health and happiness of ordinary Americans.

To gauge the health of our economy, we should ask ourselves: Are paychecks growing faster than prices? Are people easily able to find a job or switch to a better-paying job if they want one? Are Americans spending enough money to ensure that the service economy continues to add jobs?

By embracing policies that enhance the health and happiness of the majority of Americans – policies such as paid family leave, restored overtime protections for the middle class, and high-quality, affordable childcare – our leaders will reduce the misery created by a possible recession. And because consumer demand creates jobs, small businesses will continue to thrive, too. When your economic policies are centered around the growing paychecks of ordinary people, the economy improves for everyone.

Thanks for reading,

Paul Constant
Team Civic Action



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