Are we in a recession or not? What two leading economic indicators can tell us. : Planet Money So are we in a recession or not? The jury is still out, but there are some warning signs. GDP is down and inflation is up. But how much do we know about the 'indicators' that tell us how the economy is doing? Today, the stories of two of our most important indicators, the Consumer Price Index and GDP, and what they can and can't tell us about our current economic predicament.| Subscribe to Planet Money+ in Apple Podcasts or at

Two recession Indicators

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This week, we got two important developments in our ongoing national what the heck is going on in this economy saga. First, on Wednesday, the Federal Reserve again raised interest rates by three-quarters of a percentage point - another tick upward in its ongoing battle to reduce the rate of inflation. Then on Thursday, the Bureau of Economic Analysis released numbers that say gross domestic product - GDP - declined by an annualized rate of 0.9%. All the while, the White House and the Fed say we're not in a recession - yet. Woof.

Hello, and welcome to PLANET MONEY. I'm Wailin Wong. If all of these developments leave your head spinning, don't worry. Our daily podcast, The Indicator, is here to help. Today on the show, we have two stories about some of the numbers we pay closest attention to while measuring the health of our economy - the CPI, or Consumer Price Index, and the GDP. We're going to explore what these numbers actually mean and also whether we should be thinking about them differently. Adrian Ma and I start by looking at how shopping for groceries might affect inflation without actually contributing to economists' preferred measure of inflation. That's after the break.


WONG: Inflation is running at 9%. That's the headline figure you see everywhere. But economists tend to focus on a different measure of inflation called core CPI. That number is 6%. It's different from the headline CPI figure because it leaves out a couple of things that actually take up a big chunk of household budgets - gas and groceries.


And out of those two categories, groceries are really where everybody feels the pinch of inflation - right? - unless, like, you're one of those people who doesn't eat food.

WONG: (Laughter).

MA: And the general feeling of getting hit by inflation, that is something that is really important to the Fed. And that is because of the way consumers feel about prices and where they're headed. Those feelings shape behavior. And that's called inflation expectations.

WONG: Econ vocab of the day. Here's a classic example. If people believe inflation will be higher in the future, they'll ask for a raise at work. Companies then raise their prices to offset higher labor costs, creating a cycle that leads to more inflation.

MA: And this is why the Fed closely watches and tries to manage inflation expectations. They don't want anticipation of higher prices to actually become higher prices. And yet, economists' preferred inflation number to the core CPI - it ignores food prices.

WONG: And there's a reason why core CPI excludes food and energy. Their prices tend to be volatile. They fluctuate so much that including them in CPI could paint a misleading picture of inflation trends. They could maybe fool you into thinking that overall prices are going up or down more quickly than they actually are.

ULRIKE MALMENDIER: However, maybe unintended side effect of that has been that the measure of inflation we focus on does not reflect the reality we consumers live in.

MA: Ulrike Malmendier is a professor of economics and finance at UC Berkeley. And she says it just doesn't work to tell people to focus on certain prices and not others.

MALMENDIER: These daily signals we get, they just change us. They affect our brain, and doesn't even have to do with whether you were taught things or not taught things, how smart you are. And so by now, I know that it is of utmost important to not, you know, talk down to consumers and try to talk them out of looking at grocery prices. If you want to understand what is going on inside and the decisions they will make, they have to take it super seriously.

WONG: And Ulrike, she did take grocery prices super seriously. A few years ago, she and some other economists came up with a couple new measures of inflation that focus just on grocery items. They tracked real-life prices by using Nielsen data that came from shoppers taking handheld scanners to the grocery store.

MALMENDIER: We said, all right, let's focus on groceries. And moreover, let's, you know, use this very cool data we got and calculate household by household how prices for the items increase.

WONG: Ulrike and her colleagues also surveyed these Nielsen shoppers about their perception of past and future inflation. What do you think inflation was over the last 12 months, and what do you think it will be in the next 12 months?

MA: And what they found was a strong correlation between grocery prices and inflation expectations. So in other words, looking at changes in grocery prices - this category that does not appear in the core CPI number - it was a great predictor for inflation expectations. People were getting price signals beamed into their brains whenever they made trips to the supermarket, and that was driving how they felt about future price increases.

WONG: The researchers then dove in further to look at, OK, who's actually doing the grocery shopping in a household? Who is getting those price signals?

LAUREN SEEGERS: So I'm Lauren Seegers. I live in Oak Park. And I shop at Trader Joe's a lot.

WONG: In a lot of cases, it's folks like Lauren. The other day, I met up with her at a suburban Chicago grocery store.

SEEGERS: My husband, he hates grocery shopping. I actually like it.


SEEGERS: And so I do it.

WONG: She has a 1-year-old son who started eating solid foods just six months ago, so you can imagine how her bill has been growing.

SEEGERS: On my list today - let's see - we have avocados. I think I...

WONG: He goes through a pound of avocados in a week.

MA: That is a lot of guacamole.

WONG: (Laughter) Yeah. He's making it tableside, you know.

SEEGERS: And my sense at first was like, he's so small. How much can he eat? A lot (laughter).

WONG: That's, like, your only job at that age, is just to, like, eat and be cute.


WONG: So Lauren is the primary shopper in the family, and that means she is very aware of how much groceries cost. Like, at Trader Joe's, she pays $6 for a big seedless watermelon. It feels steep, but it's not as much as the $12 watermelon her husband recently got at a different supermarket.

SEEGERS: Right. He came home, and I was like, take that back.

WONG: Did you really? Did he...

SEEGERS: I mean, he didn't, but...


SEEGERS: But that's so much. Still, $6 for this. I feel like this kind of a watermelon used to be, like, three. Right?

WONG: Lauren says it feels like the price of watermelon has gone up a lot. Now, take that feeling she has about watermelon and multiply it by the other items in her cart - avocados, organic milk, ground turkey. Then think about these feelings percolating in grocery stores all across the country. It's like a tidal wave of feelings that economist Ulrike Malmendier's research shows has a huge impact on inflation expectations, which, remember, could drive inflation higher.

MA: But do we all experience these feelings the same? One factor Ulrike has zeroed in on that seems to make a difference is gender. So there is historical data showing that women tend to feel more pessimistic about future inflation than men.

MALMENDIER: All sorts of hypotheses had been proposed for that. Oh, women have less financial literacy, less education. Maybe women are innately more pessimistic about the future of the economy. We thought, how about women being bombarded with these price signals from grocery shopping, but men, at least traditionally, not doing that so much?

MA: That is a good point. I mean, Ulrike and her colleagues dove back into her grocery research. And remember, they've already discovered that grocery prices were a strong predictor of inflation expectations. Now they were adding gender roles to the mix.

WONG: And here's what they found. First of all, within heterosexual married couples, there was a significant gender gap in inflation expectations. Wives consistently expected higher inflation than their husbands. Now, here comes the dramatic part - in households where men didn't grocery shop, this gender gap in inflation expectations almost doubled. And then in households where the spouses shared grocery shopping more equally, the gender gap - it disappeared.

MA: Just poof - no more gender gap. So it's like this mundane household chore was hugely important for how people experience the economy and how they feel about it.

WONG: When you first saw the numbers, were you like, I got to run these again?

MALMENDIER: Exactly. No, that was exactly right. You can see there's been some noise in the answer - maybe, you know, a man not wanting to admit that, you know, he basically never does the grocery shopping, or maybe a woman exaggerating, like, how much she does. But that's not the case here.

MA: It wasn't a matter of financial literacy or education level either. Basically, grocery prices were responsible for how women felt about future inflation. And women who were the sole or primary grocery shoppers in their households felt way worse about inflation than their partners.

WONG: Ulrike says, teasing out how gender roles shape inflation expectations could go a long way in understanding the economic decisions that people make.

MALMENDIER: Think about labor supply, particularly if you have children, maybe, whether you stay at home. And that will be influenced by how you think prices and wages will increase in the future - how much you invest in your education, thinking about how much that will pay out. So really important decisions will be affected by these differences in expectations. And I think monetary policymakers understanding this is super helpful.

MA: Jerome Powell, if you're listening, maybe hold the next Fed governors meeting at a supermarket. You can get your weekly shopping done at the same time.

WONG: Yeah. Let us know how much a watermelon costs in Washington, D.C.


WONG: Coming up after the break, Greg Rosalsky and Adrian Ma look at how the most fundamental measurement of the health of our economy - the GDP - might be due for a revolution.



For the second quarter in a row, economic growth in the United States has declined. That's according to a preliminary estimate released this week by the Bureau of Economic Analysis. It says gross domestic product - GDP - declined by an annualized rate of 0.9%.

MA: And now the debate begins for real. Are we in a recession? Some are saying yes. We have had two consecutive quarters of negative growth. Others are like, no way. It is not a recession yet.

ROSALSKY: At the center of this debate is this indicator, this number, good old-fashioned GDP, gross domestic product.

MA: But there's also a problem with GDP. It's just one number - a single number that tells us the total size of the economy. And that number misses a lot - like, for instance, how different income groups are doing.

ROSALSKY: A team of economists wants to revolutionize the way the government measures the economy. They imagine a new kind of GDP, one that isn't merely a single number telling us about total economic growth but a collection of numbers telling us where the gains from that growth are flowing. And pretty cool - they already have a working prototype.

MA: And to put it in terms that translate to audio, you can think of classic GDP as a simple melody - one note at a time.


MA: And by contrast, you can think of the new GDP prototype as something like a chord progression.


ROSALSKY: It's GDP, the remix.

MA: Remix.


ROSALSKY: So to understand the change these economists want, it's worth going back in time to see how we even originally got GDP in the first place - you know, the simple melody version. It began in the early 1930s, when the U.S. economy was facing this nightmare known as the Great Depression.


UNIDENTIFIED PERSON: Millions of Americans - men, women and children - wait in the cold on bread lines, in soup kitchens.

ROSALSKY: So the federal government enlists this young economist named Simon Kuznets to figure out just how bad the damage from the Great Depression was. By the way, you should check out our PLANET MONEY Summer School series. There's a recent episode all about Kuznets and GDP. It's worth a listen. We're just doing the shorter version here.

MA: Back then, the government did not monitor the economy in a super rigorous way. And, in fact, for a long time, the very concept of this single nationwide entity known as the economy was sort of an alien concept to a lot of people, at least in the modern sense that we talk about it.

ROSALSKY: So Simon Kuznets and a team of nerds, they get to work. And I got to say, like, especially in the time before computers, this work must have been excruciatingly boring. We're talking, like, sifting through papers, counting things in the economy, compiling statistics - like, pretty dry stuff.

MA: Their abacuses were probably, like, smoking. But finally, in 1934, after months and months of heroic nerdery, Kuznets delivered a report to Congress. And it was titled "National Income, 1929-1932." And what it did was provide the federal government with the first comprehensive accounting system to measure the economy.

ROSALSKY: The report introduced America to a new concept - that you can size up the nation's entire economy with a single number. Back then, Kuznets called it national income. But it was a forerunner to a concept that today we call GDP. Kuznets's number became sort of a sensation. His boring report became a bestseller. The first 4,500 copies sold out, and it had to be reprinted - seriously.

MA: All of a sudden, the country had a more scientific way to estimate economic growth - to judge leaders and policies on their economic performance, and to decide whether they should change course. And before too long, the number was adopted by basically every nation on earth.

ROSALSKY: But in the very report to Congress in which Kuznets pioneered the measurement of GDP, he also cautioned against putting too much stock in it. As he said, this single metric only estimates the size of the economy, not the well-being of society. To get at that, we need to know much more, especially who is benefiting or not benefiting from economic growth.

MA: And despite that and a whole long line of economists saying, listen, GDP is not the end-all be-all of the economic conversation, that indicator - GDP - still continues to dominate the conversation. And that is why a team of economists at UC Berkeley is trying to change that.

GABRIEL ZUCMAN: The big problem is that GDP data doesn't tell you who is benefiting from economy growth.

MA: Gabriel Zucman is part of a trio of economists trying to revolutionize GDP, along with Thomas Blanchet and Emmanuel Saez. They offer a new GDP prototype - you know, the remix.

ROSALSKY: This prototype breaks down data in economic growth and sees where the gains from that growth are going. They publish it all on a website called

MA: Now, here in the U.S., of course, we already have a ton of data on inequality. The problem, Gabriel says, is that it usually takes a year or two for this data to be updated. And that is just way too slow for a fast-moving world.

ZUCMAN: Part of the motivation for this project was the COVID-19 pandemic, where you have this dramatic crisis and economic shock, and policymakers are in the dark, you know, to some extent. Like, you know, is it enough to create all these new transfers and growing programs, or is it not enough?

MA: So to follow where all these slices of economic pie are going, Gabriel and his colleagues have cobbled together data from a whole variety of official sources and pioneered a method to compute how different income groups are doing economically way quicker than has been done before. So they hope the government will follow suit.

ZUCMAN: So we want to be able to produce numbers about how income is growing for each social group at the exact time when the Bureau of Economic Analysis releases its official GDP growth numbers.

ROSALSKY: So this prototype is not that fast yet. GDP for the second quarter, after all, just came out, and the prototype has not been updated yet. They just have numbers for the first quarter. Have a little patience, people.

MA: But, you know, this prototype can already tell us some really important things about the recent past. Gabriel and his colleagues have used it to look back in history and see how different income groups have fared during past recessions and recoveries.

ZUCMAN: One very striking illustration is what happened after the Great Recession of 2008, 2009. GDP recovered in about four years. But it took more than 10 years for the bottom 50% to recover its pre-Great Recession income level. So you had a massive disconnect between, you know, how GDP was growing and how income was growing for most of the population.

ROSALSKY: Compare that to the pandemic recession and recovery. According to their prototype, it took 20 months for the bottom 50% to recover to their pre-crisis income level. That was about twice as long as it took for the top 50% to recover.

MA: But over the last year or so, it's been the poorer half of America, for once, that has been improving their position. Surging incomes have helped push them closer to the richer half of Americans, and part of that was because a lot of people were getting pandemic benefits from the government.

ROSALSKY: But even after those were rolled back, a super tight labor market has been helping to push their incomes up. Meanwhile, Gabriel's tracker shows the rich have been seeing their incomes decline largely because the stock market has tanked.

MA: It's a pretty extraordinary change from the past 40 years where the bottom has seen very little income growth and the top has seen massive gains.

ROSALSKY: But there's also the other side of the coin of these wage increases for low-income Americans. Evidence suggests it's one reason why inflation has been surging. Macroeconomic theory has long said there's a tradeoff between a super tight labor market - you know, where wages are surging - and inflation.

ZUCMAN: Look - like everybody, I dislike inflation. But if it's a price to pay for gains for groups that have been excluded from growth, let's discuss. I think the tool that we're trying to develop is precisely what will make it possible to have an informed debate about those tradeoffs.

ROSALSKY: And this tool already appears to be part of the debate. When Gabriel and his colleagues first released it earlier this year, the Biden White House jumped at the chance to highlight the gains it shows for working-class Americans. It was sort of a proof of concept.

MA: And that's a big deal - right? - because for Gabriel and his trio, it wasn't just enough to make the remix. The hope was that people would actually listen.


WONG: That was Adrian Ma and Greg Rosalsky. These episodes of The Indicator were produced by senior producer Viet Le and Jamila Huxtable with engineering support from Debbie Daughtry and Robert Rodriguez. They were fact-checked by Kathryn Yang. Kate Concannon edits the show.

I'm Wailin Wong. This is NPR. Thanks for listening.

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