How the K-shaped economy explains why it feels like we are in a recession

The U.S. hiring rate is at its lowest point since the pandemic began, many consumers are still grappling with inflation, and nearly half of Americans would struggle to cover an emergency expense.

Although we are not in a recession, 57% percent of Americans believe we’re in one, according to a December poll from the U.K. publication The Guardian.

Inflation since the COVID-19 pandemic has put pressure on the lower half of the income distribution, said Alex Hsu, an associate professor of finance at Georgia Tech. “It’s just very tough to survive,” Hsu said. Since April 2020, consumer prices have risen 29%. Meanwhile, the rich are getting richer. Those invested in the stock market are seeing their wealth rise thanks to generous market returns.

Some economists say we’re living in a K-shaped economy, a term used to describe the increasing divide between the wealthy and poor.

The National Bureau of Economic Recession, the group that officially declares whether the U.S. is in a recession, defines one as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” It takes into account numerous factors like gross domestic product, personal income and employment levels. The NBER is very cautious in declaring a recession, and we don’t know if we’re officially in one until months after we’re in an actual economic downturn, said Mark Zandi, chief economist at Moody’s Analytics.

“That’s why you have economists engaging in this age-long debate: ‘Are we in recession or not a recession?’” Zandi said.

While experts say we’re not currently in a recession on a nationwide-level, some economists are looking at different parts of the economy to assess recessionary activity.

Tyler Schipper, an associate professor of economics at St. Thomas University, said he thinks it’s important to maintain a consistent definition even though aggregate data can tell a different story than what people are feeling.

“We want to keep from redefining what a recession is every time something in the economy feels uneven, otherwise the word kind of loses its usefulness,” Schipper said. “Consistency matters when we're trying to make comparisons across time.”

But it is also important to disaggregate macroeconomic data and talk about how “there are cracks in the economy,” Schipper said.

Zandi said the economy as a whole is not in a recession, pointing out that in recent years, inflation has slowed and people’s real incomes have gone up even though wage growth has slowed down. But he said the economy “isn’t operating on all cylinders” and some parts of the U.S. are in a recession.

Zandi has looked at economic data on a state level, finding in late 2025 that states making up a third of U.S. GDP are in a recession or at high risk of one. Those states include Washington, Oregon, Minnesota, Mississippi, Georgia and Connecticut.

A third of U.S. state economies are still currently in or at high risk of a recession, he noted.

Zandi said he wanted to look at regional data because even though we may not be in a recession, “we’re pretty darn close.”

“If you look under the hood, you see a lot of stress and a lot of dysfunction,” Zandi said. “The recession risks are very elevated.”

Zandi puts the odds of a recession within the next 12 months at over 40%.

Some economists, like Pascal Michaillat at the University of California, Santa Cruz, pay special attention to labor market indicators to get a better sense of whether the economy has entered a recession.

Michaillat said he looks at labor market data because this is the same data you’d want to use to look at whether we’re meeting employment targets.

The labor market cooled significantly in 2023 and 2024, Michaillat said. While the labor market stopped cooling in the latter half of 2025, it continued to decline in the winter, he added.

The U.S. economy added an average of 9,700 jobs a month in 2025, marking it the weakest year of hiring outside of a recession since 2002. In March, the U.S. economy added 178,000 jobs, but slashed 133,000 jobs in February. And the hires rate in March was 3.1%, which is the lowest rate since April 2020.

“If you look at the labor market, there is a real risk that we may enter a recession,” Michaillat said.