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Is the US economy currently in a recession? This is what we know

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Even though the year is already more than half over, the economy remains a hot topic.

According to the latest report from the U.S. Bureau of Labor Statistics, the national unemployment rate rose to 4.3 percent in July.

The consumer price index, which measures the inflation consumers face on a daily basis, rose 0.2% last month, largely due to rising housing costs.

At the same time, employment in the country only increased by 114,000, mainly in the health care, construction, transportation and warehousing sectors. And recent volatility in the stock market has also given many consumers pause for thought.

These events have left consumers wondering whether the country is in a recession.

The Courier Journal caught up with Uric Dufrene, Sanders Chair in Business Administration at Indiana University Southeast, to learn more about the state of the economy and whether we are currently experiencing a recession or are on the verge of one.

What is a recession?

A recession is “a noticeable slowdown in economic activity,” said Dufrene.

This downturn is usually measured and identified when there are declines in gross domestic product (GDP), i.e. the market value of goods and services, in two consecutive quarters.

“If the United States were a corporation, GDP would be the value of all goods and services produced based on consumer consumption,” Dufrene said.

When consumers are price-conscious and choose less expensive products and services, this can contribute to the decline in GDP. During a recession, the decline in GDP is usually accompanied by rising unemployment.

Are we in a recession?

In short: no.

Dufrene and Alberto Musalem, president and CEO of the Federal Reserve Bank of St. Louis, whose region covers Kentucky, agree that we will not have seen a recession by 2024.

At an event hosted by the Greater Louisville Inc. Regional Chamber of Commerce in August, Musalem said the U.S. economy had “grown very well” over the past six months.

“The data does not support the notion that we are in, were in or are approaching a recession,” Musalem said.

Kentucky's unemployment rate is 4.7%, slightly higher than the national rate, according to data released in July by the Kentucky Education and Labor Cabinet.

Dufrene said Kentucky is experiencing a slightly different economy than the rest of the country because it is heavily dependent on the manufacturing industry, which helps set the tone of the state's economy. The manufacturing industry is currently experiencing a recession, largely due to high interest rates and falling demand for manufactured goods as consumers remain price-conscious.

Although this key industry in Kentucky is experiencing a recession even at the local level, “we are not in a recession,” Dufrene reiterated.

What is inflation?

Inflation is the increase in the price of goods and services over time. The current inflation rate in the United States is 2.9%.

Are inflation and recession related?

“Inflation without income growth means that purchasing power is falling,” said Dufrene. “High inflation could lead to lower consumer activity.”

During times of inflation, consumers become more price conscious as they wait for prices to stabilize and return to “normal.” This decline in spending or a change in spending habits can lead to a decline in GDP, which, if sustained long enough, could increase the likelihood of a recession.

Inflation is a key factor in consumer sentiment, or how consumers view economic developments.

“It all goes back to inflation,” Dufrene said. “Everyone is affected by inflation, whether they're employed or not. Whether you make six figures or you live at the poverty line, you're affected by inflation, and consumers generally don't like inflation.”

What role does the government play?

During recessions, the government could use some “automatic stabilizers” such as unemployment benefits to provide relief to consumers, Dufrene said.

A recent example of government action to reduce the economic burden on consumers during difficult economic times was the issuance of government stimulus checks during the pandemic.

On the other hand, Dufrene said, “excessive government spending” could lead to more inflation, and more inflation, along with other factors such as high interest rates, could lead to a decline in consumer spending.

Contact business reporter Olivia Evans at [email protected] or on X, the platform formerly known as Twitter, at @oliviamevans_.

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