We’re almost halfway through 2023, and there is still no data that says a recession has begun, at least officially. Sure, there are a host of economic reports that have provided clear signs that certain aspects of the economy may be in a downturn, but for the overall economy, not yet. Or are the stock and bond markets not looking in the right place?

Let’s go back to 2022 to offer some perspective. As the reader will recall, the U.S. economy did enter into a “technical recession” last year. If you look at Econ 101, most of us were probably taught that the definition of a recession is when real GDP declines for two consecutive quarters. According to the Bureau of Economic Analysis (BEA), real GDP did register back-to-back negative readings during the first two quarters of 2022. However, for whatever reason, a notable debate arose suggesting that, no, the economy wasn’t in a recession, and the markets should look to other measures to gauge overall activity.

According to that side of the debate, it was suggested investors might be better off looking at another statistic produced by the BEA: gross domestic income (GDI). For the record, BEA defines GDI as a measure of the incomes earned and the costs incurred in the production of gross domestic product and is another way of measuring economic activity. Meanwhile, GDP measures the value of the final goods and services produced in the U.S. In other words, GDP calculates economic activity by expenditures, while GDI focuses on the incomes generated during the process. Interestingly, BEA states that both are “conceptually equal,” and while each series can produce different short-term results, they tend to come together over the long haul. In fact, according to an earlier BEA study, the correlation between GDP and GDI for final current quarterly estimates is 0.82.

So, back to the data. Last year, while real GDP was producing those two consecutive negative quarters, GDI was actually registering two positive outcomes. Now fast forward to the most recent set of quarterly numbers available: Q4 2022 and Q1 2023. In this instance, BEA has reported that real GDP rose +2.6% and +1.3%, respectively. However, GDI has declined -3.3% and -2.3%, respectively.

We find it a bit curious as to why there has been no debate this time around, especially given the notable discrepancies between these two measures of economic activity. Last year, some market observers were saying one should average GDP and GDI together to get a more accurate assessment. Well, according to the BEA, the average of GDP and GDI has also fallen into negative territory, with Q4 at -0.4% and Q1 at -0.5%.

Does this mean the U.S. economy is actually in a recession? Not according to the textbook definition, anyway. During the “are we or aren’t we” debate last year, a key argument for the “no recession” camp was that the economy couldn’t be in a downturn with such a solid labor force backdrop. Interestingly, we find ourselves in the exact same spot yet again, which was underscored by the relatively firm May jobs report.

While consensus forecasts still look for a negative real GDP reading to emerge during the second half of this year, we recommend focusing on the employment numbers for clues, an integral part of the economic landscape the Fed will be continuing to monitor closely, as well.