Is the economy strong? Or are we in the midst of a recession, despite what the headlines and experts are telling us?
If you’re unsure, you’re not alone. Even though traditional economic metrics paint a relatively rosy picture—unemployment is hovering right above 4%, a historically strong market, GPD has similarly been strong, and inflation has come down drastically over the past year—many people feel that we’re in dire economic straits. In August, roughly 60% of Americans said they believed the U.S. was in a recession, according to a survey from Affirm. Further, in October, more than half of Americans said they were worse off than they were four years ago, according to a Gallup poll.
That disconnect has many wondering just what, exactly, is going on. As it turns out, even economists and experts are having a hard time trying to make sense of our current economic landscape, and there’s a pretty simple reason for that: We’re in uncharted economic territory.
“The thing that’s made this such an odd moment is that this has really looked nothing like any previous business cycle, ever,” says Austan D. Goolsbee, president and chief executive officer of the Federal Reserve Bank of Chicago. “That makes it difficult to figure out where we are, when all of your language is rooted in historic episodes and this was a fundamentally unprecedented cycle.”
Put in other terms, Goolsbee says it’s like “trying to describe what meat tastes like when all you’ve ever had is chicken: How do you describe beef?”
Goolsbee tells Fast Company that the pandemic created a unique set of circumstances, largely because the country experienced a short but severe recession that was driven by the service sector, which is typically recession-proof. When the country bounced back, the job market became as hot and competitive as it’s ever been, and employers had to fight over workers and contend with labor shortages.
It was “completely ahistorical,” Goolsbee says.
But that had a sort of warping effect on many people’s minds and expectations about the economy. Even though we’re still seeing numbers that indicate a healthy and strong economy, many people feel like it’s slowed down significantly. And it has slowed, but just from record levels down to more moderate, typical levels.
Goolsbee says that’s exemplified by the fact that the unemployment rate—which has risen from 3.4% in April of 2023 to 4.1% as of November 2024 as the Fed hiked rates to combat inflation—still looks like “full employment,” but the labor market has tightened from where it was, leading many to think we’re head into or are experiencing a recession.
With that in mind, Goolsbee says it’s current price levels that are likely the biggest culprit in shaping people’s opinions of the current economy. That’s despite the progress the Fed has made in lowering the inflation rate (or CPI), which topped out at 9.1% in June of 2022, and was 2.6% in October of 2024. The Fed’s target is 2%.
“Those aren’t sufficient statistics to characterize where the economy is,” he says. “People are upset about price levels, not the rate of inflation.”
In other words, a box of Cheerios still costs more at the grocery store; consumers notice when prices rise, not that prices are rising more slowly than they were two years ago.
To sum it all up, and reiterate, Goolsbee thinks that the main issue with our current understanding of the state of the economy is that we simply don’t have a historical parallel to compare it to, even though many of us are trying to find one.
As such, he likens it to training a large language model (LLM) tool like ChatGPT—which digests the information that it’s fed to train itself and then uses that information to generate responses to users’ prompts. We typically “train” ourselves—form opinions or expectations, in this case—based on a sample of information and events that have already happened, and in this case, we’re unable to formulate a satisfactory response because nothing quite aligns with the current economy.
“People’s ‘training sample’ is simply not appropriate to what’s happening,” he explains.