Despite all else going on with inflation, the stock market and supply chains, economists are clear on one thing: There is no recession. So why does it feel like one to many?

University of Michigan economist Donald Grimes has been looking under the economic hood, and it all comes back to your real disposable income. So let’s get real with some things to know.

Where does our disposable income stand? 

The real disposable income per capita in the United States was about the same in April (the most recent month for which data is available) as it was in February 2020. So despite the ups and downs during the pandemic and recovery we are in, 26 months later, about the same place as we were before the pandemic.  

That’s good, right? Not so fast. According to Grimes, real disposable income per capita normally grows 2%-3% per year. A growth period this weak is unusual outside of recessions. From an income growth perspective, we are in a recession-like period.

Real after-tax income per person is on track to show the greatest decline this year since 1932—a fall of 5.6%, he notes.

This is partly due to the ending of federal transfer payments like the stimulus checks, expanded unemployment insurance and the expanded child tax credit—which caused real disposable personal income per person to grow by an unprecedented 6.2% in 2020 during the COVID-19 recession, and an additional 2.2% in 2021—and partly due to the spike in inflation.

So it feels like a recession but isn’t?

The reason we are not in a recession now despite this weak income growth is because people accumulated huge amounts of excess savings in 2020 and 2021 when their income was high, but they couldn’t spend it. They are spending that savings now, Grimes says.  

He suspects that U.S. consumers had more than $2 trillion in extra savings during 2020 and 2021. That’s allowed people to keep spending now despite the weak income growth since February 2020. Real consumer spending per capita is up 5.2% compared to real disposable income per capita growth of only 0.2% between February 2020 and April 2022.

Is there hope for a rebound from this recession, er, recession-like period?

It will be hard to duplicate the rebounds that followed previous recessions, Grimes says, because the United States is not going to be adding large numbers of jobs in future months (the unemployment rate is already 3.6%). So it’s very likely the gains in real disposable income per capita will remain relatively small and could go negative in the coming months if inflation continues to run higher than wage growth.