New Recession Indicator Shows Americans Worse Off Than We Thought

Dave:The US is on the brink of a recession, or at least that’s what one major bank is saying. According to another one, though the risk is mild and it’s actually going down. So which one is it? Is the economy really faltering and at risk of serious declines or is growth going to continue and does any of this even actually matter to real estate investors? Today we’re going to dive into this and discuss why the traditional ways of measuring recessions is failing to provide ordinary Americans and the real estate investing community with the information it needs, and I’ll even share with you a brand new indicator that I’ve developed to help us make sense of how the economy is really performing.Hey everyone. Welcome to On the Market. I’m Dave Meyer. Thank you all so much for joining us today. Today we’re going to talk about recessions. Are we in a recession? Are we going to be in a recession? Because it feels like this question has been on everyone’s mind for like five straight years. It seems like it’s never not in the media. There is always a headline about this. In today’s day and age and recently I’ve been seeing completely opposite reads about what’s going on in the economy. There’s recently a study by UBS, one of the biggest banks in the entire world that said the probability of the US going into a recession is 93% right now, that’s pretty high. Meanwhile, chase the biggest bank in the United States says it’s only 40%. So what gives here? How can two banks, they’ve got the same data, how can they have such different conclusions about what’s going on in the economy?And I should mention, it’s not just these two banks. Everyone is all over the board. Really smart people have totally different opinions on what’s going to happen. Some people are saying AI is going to destroy the labor market. Others say it’s going to lead to a massive boom in the economy. Some people think tariffs are going to lead to domestic job growth. Others say the opposite. That’s going to drag on business growth. In this episode, we are going to try and separate the signal from the noise. We’re going to start by just first of all talking about what a recession is in the first place, how it’s currently measured and why personally, I’ll just tell you now. I think that measurement is inadequate for what we need. Then we’re going to talk a little bit about better ways to measure the true performance of the economy, including a indicator I’ve been working on in my spare time, and then we’re going to talk about what this all actually means for just the average American and for investors, because ultimately the whole point of a recession is to help us understand what we should be doing with our own personal finances and our investing decisions.So we’re going to talk about that as well in this episode. Let’s do it. So first up, let’s just talk about why we cannot agree on whether or not we are in a recession. Why is this one word recession the focus of the entire financial media when the reality is the word is sort of meaningless. I’ve said this on the show before, but the more time I spend thinking about this, the more true I think it becomes. The word recession has sort of lost all meaning. Let me explain. First of all, there is no actual definition of a recession, so that is definitely one. Maybe the biggest factor in why it’s so meaningless and confusing is because there is no actual standard definition, and this is a common misconception. Many people believe that the definition is two consecutive quarters of negative GDP growth, but that is not what it is in the United States.When a recession starts and when it ends, and whether we’re inward or not is all decided by a group called the National Bureau of Economic Research, and it is decided retroactively, meaning that after the recession has started, they point backwards and say, okay, it started six months ago, a year ago, two years ago, and then they will say once it ends a year or two after it ends, and it has actually been this way since the seventies, and I know that people think that the definition of a recession has been changed, but it actually hasn’t changed. It has been this way for 50 years. I went on the website and pulled exactly what the National Bureau of Economic Research says their definition of a recession is, and it is a recession, involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.In our interpretation of this definition, we treat the three criteria, depth diffusion and duration as somewhat interchangeable. That is while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion might partially offset weaker indications from another end. What does that even mean? That is basically just saying we decide subjectively what a recession is based on looking at data, and I think that’s just the reality of what happens. They don’t say it has to meet this one criteria. We look at one data set and that’s what we decide on. It’s like basically we look at the whole economy and we decide whether or not we are in a recession. This is how recessions are defined in the United States. It’s been this way for a long time. You can go Google it and it’s true. So this is a pretty big issue, right?Recessions are inherently in the United States subjective, so it is no wonder everyone is debating it because you can’t really measure it. There is no one true way of saying there is a recession, at least officially, but it is important to note that because this is frustrating and because the definition is so subjective, many people do use the rule of thumb of two consecutive quarters of negative GDP because no one really wants to wait around for the National Bureau of Economic Research ember to tell us that there was a recession years after their is already over. And this rule of thumb, it is useful, but I also think it falls short because GDP is not that great of a metric. Yeah, I know that someone who likes economics like I do, saying that GDP is a bad metric is not the most common thing to hear, but before you get all up in arms about it or concerned about it, be honest, can any one of you tell me what GDP is?Anyone do? You may know that it stands for gross domestic product. That’s great, but do you know what it actually means? Do you know what the formula is, how it’s calculated, what it’s measuring? If you’re wondering, I can tell you that it’s consumer goods plus investment spending, plus government spending, plus the difference between imports and exports, also known as the balance of trade, and that’s how you get GDP. Cool. I mean there’s obviously important metrics in there. I’m not saying GDP is useless, but it’s missing in my opinion, one pretty big thing. Maybe the biggest thing, it completely lacks a measurement for how well the average American is doing. It doesn’t talk about if the average American is better off if they’re employed, are they getting any wealthier? GDP only measures business activity, government activity and consumer spending, but there’s nothing in there about savings or net worth or preparedness for retirement or wealth building for the average American.And I think this is where it all breaks down because when people talk about recessions with their friends or their families, if they’re concerned about this thing or they’re talking about it on social media, how many of those people, when you talk to your friends about a recession, are you talking about the balance of trade declining? Is that really what you’re worried about? Are you worried about business investments declining? Maybe a little bit. Those things matter, but I think you’re probably worried about paying your own bills, about having gainful employment about how the performance of your real estate or your stock portfolio is going to do, and GDP doesn’t fully measure that. So this is why recessions are so confusing. First, it is completely subjective, and even though we have developed this rule of thumb, two consecutive quarters of GDP decline to cut through that subjectivity so that we have something that we can measure and look at, that also falls short because what the media and the government track in terms of GDP is not really what Americans are thinking about with a recession.They are different things. I think this is a perfect example of what happened in 20 21, 20 22. There was not officially a recession during that time, but a lot of people felt like we were in a recession because real wages were going down because inflation was super high and it was eating into people’s spending power. That’s where this disconnect goes. Yeah, GDP was going up, but ordinary Americans were suffering, and so that’s why this word recession has become so meaningless is because people think about it in totally different ways. So we do got to take a quick break to hear from our sponsors, but we’ll be right back with more about recession indicators and what you should be doing about them.Welcome back to On the Market. I’m here talking about recession indicators, how they fall short and how you can do it better. Let’s jump back in. Now again, I think GDP is important for sure. It does do a decent job of how big the overall economic pie is. That is sort of the thing that it is good at. It is good at telling us is the total output of the economy doing well. That’s useful, but we can’t just base recessions around things that are removed from the everyday experiences of American citizens. We need both. So being an analyst and a weirdo who loves this stuff, I decided to figure out my own measurement of the type of recession I think most Americans care about. Not everyone, but just the average person going out there living their life. I wanted to sort of measure is the average American getting better off yes or no?Because to me, frankly, that’s more important than GDP growth because that’s what actually matters to people. So ultimately, when I decided to think about this, I tried to think about what is the best measurement of financial wellbeing. There are tons, and I’m going to share with you what I came out with, but I genuinely love your feedback on this because it’s something I want to sort of build on and improve over time. I kind of want to create a new metric that we can all talk about here on the market. What I came out with out of looking after dozens of different indicators and things, and I wanted to keep this simple. What I decided the most important thing is real wage growth, the inflation adjusted income of the average American. I want to know if you are working and doing your job well and meeting the criteria of your job, is your spending power going up or down?To me, this is perhaps the most critical thing because it’s kind of hard to say that things are going well for the American economy if wages are lagging behind inflation. If you’re working hard and you are getting your paycheck and that is buying less and less and less, that’s not good. That is a big warning sign for what’s going on in the economy. On the other side, if you’re working your job and doing a good job and your paycheck is buying more and more and more stuff and more than keeping up with inflation, that’s a good thing. That’s a very good sign of a healthy economy in my opinion. So that became my number one metric is real wage growth up great. The economy is doing well, is real wage growth negative? Then we’re in an ordinary person recession. We got to come up with a good name for that.So give me some ideas for that. I should have thought of this before we started recording this episode, but I need a name for this other kind of recession that I’m trying to track. I’m going to call it an ordinary person recession, the thing that just came out of my mouth. So that’s one indicator. The other indicator is unemployment going up. Kind of had to come up with a complicated thing here because for example, right now, November, 2025, unemployment has been going up, but it’s at 4.1%, so that is still really low. So I wouldn’t say that we’re in an ordinary person recession because we’ve gone from 3.5% to 4.1%. I did a little bit of math here if you’re familiar with something called the SOM rule or the SOM indicator, it’s very similar to that. Basically, if you want to know nerds, if the three month moving average is more than 25% above the three year moving average, basically I’m measuring are they getting way worse than they’ve been recently?Hopefully this makes sense to you guys. Again, I’m going to keep explaining it, but let me know if it makes sense to you at the end because I wanted to keep it simple, and I actually purposely kept the reasons out of this. There are reasons that real wages have gone up and down. There are reasons that unemployment go up and down. Those things are very complicated, and I didn’t want to come up with a super complex thing. I wanted something everyone can really understand. Our wages going up, is unemployment going up? That’s sort of what we’re looking at here. So I did this. I actually did all the number crunching and data going all the way back to 1981. I looked at 45 years of data, and what I found is pretty interesting. By my metric, the US economy has been in a real person recession far more than the government.The ember definition of what a recession is, if you look at how well the average American has fared for the last 45 years, it’s not as pretty as our GDP numbers would make you think, and I want to be clear about something. This is not political. This is not a reflection of anything that’s been going on in the last year or even the last few years. This goes back decades, this goes back at least 45 years, but I do think it explains a lot of what is going on in the economy today. Here’s what I got In the last 45 years, that is 540 months, 57 months have been a recession according to Ember. Officially, we’ve had about 10% of the time we have been in a recession. We had a long time in the early eighties, 17 months. We had nine months in the early nineties, nine months around the.com bust, 19 months, longest one I tracked in the great financial crisis during oh 8, 0 9, and then three months at the start of COVID.So what they’re saying is that since the great financial crisis ended only three months, the US has been in a recession. That’s interesting. I think if you’re in a high job, if you work in tech or high paying job, you probably agree with that. If you are more in a blue collar, middle class kind of job, you might disagree with that, but that’s what they have in my metric. Out of those 540 months, 240 of them have been a normal person recession. That means a little bit less than half of the time conditions for the average American worker are not getting better. We are either in a situation where unemployment is going up or wages are going down. In the eighties, we had 31 months of this. Then there was a little blip in the mid eighties, 45 months of it in the late eighties and early nineties, 21 months in the mid nineties, 22 months in.com, great financial crisis, 57 months instead of the 19 official ones, which I should say I lived through.That definitely did not feel like the recession. The GFC was only 19 months. It felt like four or five years to me. Then we had 11 months in 2020, and my indicator for anyone who is wondering does put us having a recession for 21 months from 2021 to early 2023 because inflation was destroying everyone’s income and real wages were going down. Should also mention that by my measurement, we are not in a recession right now, but there is a risk that real wage growth goes negative next year. So it’s something that I personally will be watching, hopefully with feedback from all of you. So what I’m saying is that over the last 45 years, in any given month, it was about a 50 50 shot if your spending power was going up or down or unemployment was getting worse. That is not ideal, and this was really pretty eyeopening to me because I think it puts the numbers that I have personally just felt, and I think a lot of people in the United States feel is that the US economy is not working as well for them.Yeah, GDP has been going up, but inflation has been pretty brutal for the last four years. It’s hard to get ahead. Very few Americans are prepared for retirement. I didn’t realize this until I did this data analysis, but this is kind of the reason I got into real estate investing in the first place. I could see, you could feel this even going back 10, 15, 20 years when I was in the start of my career, you could feel that you couldn’t really rely solely on wages from a traditional job for your financial wellbeing, for long-term wealth, for retirement. I personally wanted to become an entrepreneur in some way to help mitigate that risk. Unfortunately, for me, real estate has provided that for me, and it has really worked out, and this is kind of why I wanted to make this episode in the first place because a lot of people are focused on what is going on, whether we’re officially in a recession, who’s calling that we’re in a recession, who’s saying that we’re not.But the reality of the situation is that for most Americans, when you’re trying to make investing decisions and decisions about your own life, it’s kind of this stuff, the stuff that I’m talking about, unemployment, real wages, that honestly matters the most because for me, what this really made me realize is official recession or no recession, it is very difficult for the average American to rely on their career, a traditional job for their wages and their quality of life to improve. Now, there have been spurts where it’s been good over the last 45 years. There’s been spurts when it’s been bad, but overwhelmingly, I was just shocked to see this, that 10% of the time we’re saying we’re in a recession officially, but 40% of the time the average conditions for an American employee is not getting better, and so to me, this just further points the idea that you need to take your financial future into your own hands. For me, I’ve chosen a combination mostly of real estate. I also do some other types of investing, but it really justifies to me the need to use means tools outside of your traditional income, outside of these traditional measurements of whether the economy is growing or not to measure your own success. I’ve got more for you in just a minute about how you should be thinking about this data for your own portfolio, but we do have to take a quick break. We’ll be right back.Welcome back to On the Market. Let’s jump back in. So for me, what I’m going to do about this information is try and focus a little bit less on who’s saying we’re in a recession and who’s not, because no one knows the economy is uncertain right now. I don’t personally think we’re in a recession just yet, but there is risk, and the best way I think to handle this uncertainty and risk is to focus on your personal situation and how to make it better. For me, that includes investing, so I have cashflow and tax benefits and inflation hedged assets like real estate to make sure that whether we go into official recession or a recession of I’ve defined, it matters less because you’re insulating yourself against those risks regardless of what happens out there. To me, that is how you ensure that your spending power is actually going up.Your quality of life is actually going up, your financial security, your sense of wellbeing is actually going up, is focusing on the things that you can control, and sometimes you can’t control your own wages, but if you listen to this show, if you learn about real estate investing or entrepreneurship, you can have a higher sense of control over your own financial freedom. Again, I have felt this for a long time. It’s why I wanted to become an entrepreneur is because I felt that I couldn’t rely on a job, and this analysis has really sort of put numbers to that in a way that has felt validating. It’s a little scary because it does mean that you have to take this on for yourself, but I also find it super motivating. I really just think that it shores up my own belief that you have to be proactive about your own financial future because the macroeconomic market might not do it for you.That’s my takeaway from all this. By the way, I should also mention even if we do go into an official recession in four out of the last six recessions, home prices actually went up because mortgage rates typically go down, make housing more affordable. So if you hear people do talking about an official recession, if it ever gets named, it is not necessarily a bad thing for real estate. It’s probably not good for the country as a whole. You don’t want GDP going down, but it can help real estate, which actually can stimulate GDP, help the whole country recover in the longterm. That’s just some food for thought. But in the meantime, while we wait for the people to decide if we’re in a recession or not, again, I’m going to focus on my own personal real wage growth. What’s going to matter to me? Is my own spending power going up more than inflation?Can I create a portfolio that will ensure that’s happening even if the rest of the economy isn’t doing that well? To me, that’s the ultimate measure of success and future proofing and insulating and wealth building that you can do as a result of some of this analysis I’ve been doing. That’s what I am really going to be focused on in the years to come. I would love your opinions about this as well, though. I’m an analyst, a data scientist. I worked hard on this, but I need input on this. I would love to know what I’m missing. Is there something I should be including in this? Do you think I’m totally off base, or do you think this information is actually helpful? Does it help you have a better understanding of the decisions you should make about your own financial future, about your own investing portfolio? I would love to know your thoughts in the comments below. Thank you all so much for listening or watching this episode of On the Market. I’m Dave Meyer. We’ll see you next time.