Is the Economy Already in a Recession?

Economics
Published

In the bi-weekly newsletter Eye on the Economy, NAHB Chief Economist Robert Dietz provided the following overview of the nation’s economy and its impact on the housing market.

Consumer inflation, led by rising rent costs, surged in June. The Consumer Price Index (CPI) posted a 9.1% year-over-year gain, which was the largest since 1981. This was even higher than expected by most economists — and the Fed itself — and shows that inflation in the broadest sense has not yet peaked.

However, an alternative measure used by the Fed, Core Personal Consumption Expenditure (PCE) inflation, likely has peaked. The shelter component of CPI (i.e., housing) makes up 40% of the inflation reading, with rent for primary residences increasing 0.8% in June alone — the largest gain since 1986.

The June inflation data guarantee that the Fed will increase the federal funds rate by 75 basis points during its policy meeting at the end of July. In fact, because June’s inflation measure was worse than expected, there is a rising chance the Fed increases by 100 basis points, pushing the federal funds rate to 2.75% and inverting much of the yield curve. With the 10-year Treasury rate near 3%, the Fed’s projected monetary policy path would take the funds rate to 3.8% by early 2023, which the NAHB economic forecast indicates will bring on a recession.

This raises the question: Is the U.S. economy already in a recession? First-quarter GDP growth was down 1.6%, and we estimate that GDP growth for the second quarter was down by at least 1.5%. This meets the traditional definition of a recession: two quarters of negative growth.

However, the National Bureau of Economic Research (NBER), the quasi-official body for calling recessions, takes a broader view looking for both GDP contraction and labor market deterioration. But the labor market remains tight: In June, the economy created 372,000 net jobs, and the unemployment rate remained historically low at 3.6%.

The recession question is somewhat academic. Whether NBER calls it as such, the economy is experiencing a downturn, with the Federal Reserve aggressively tightening financial conditions, the housing market slowing quickly (as evidenced by six straight months of declining builder sentiment), and hiring freezes and limited layoffs spreading among some sectors of the economy.

The first half of 2022 marked a slowdown that will yield several quarters of weak growth and rising unemployment. This will ultimately lead to an “official” recession, although it will be mild compared to the Great Recession a decade ago.

And recall that although housing market weakness can lead the economy into a downturn, housing is typically the first sector to rebound as markets recover. This will be helped by the fact that there remains a housing deficit in the United States.

To subscribe to Eye on the Economy, visit the e-newsletters webpage.

Subscribe to NAHBNow

Log in or create account to subscribe to notifications of new posts.

Log in to subscribe

Latest from NAHBNow

Advocacy

Oct 28, 2025

NAHB Urges Quick Confirmation of Frank Cassidy as FHA Commissioner

NAHB Chairman Buddy Hughes issued the following statement today in support of Frank Cassidy to serve as the next Federal Housing Administration commissioner and assistant secretary of housing.

Labor

Oct 28, 2025

How COVID-19 Reshaped the U.S. Labor Market

Between February 2020 and June 2022, the U.S. labor market experienced the deepest downturn and fastest rebound in a century. The global COVID-19 pandemic disrupted the economy, causing an unprecedented shutdown and record job loss across all industries. However, the labor market was still able to recover remarkably quickly, and this rebound continues to shape today’s employment trends and the broader economy.

View all

Latest Economic News

Economics

Oct 28, 2025

Home Price Growth Slows

Home prices in August grew at the lowest annual rate in over two years, according to the recent release of the S&P Cotality Case-Shiller Home Price Index (seasonally adjusted – SA).

Economics

Oct 27, 2025

Two-Story Foyer Trend Stabilizes in 2024

In 2024, nearly a quarter of new homes were built with a two-story foyer, virtually unchanged from 2023, according to data obtained from the Census Bureau’s Survey of Construction (SOC) and tabulated by NAHB.

Economics

Oct 24, 2025

Inflation Picks Up in September

Inflation increased in September to the fastest pace since the start of the year, showing tariff pressure on prices continues to materialize gradually, according to the Bureau of Labor Statistics (BLS) latest report.