Dave:
I created a new better way of tracking recessions in the United States. I told you exactly what would trigger that recession and now as of last week, that recession is here. Back in November, I was growing frustrated with the traditional definitions or really lack of definitions about what a recession actually is. Because to me, the normal way of using GDP, gross domestic product, it doesn’t really reflect the economic experiences of ordinary Americans, which at least to me is what actually matters. I did some research and actually came up with a new definition of recession. As of last week, by my definition, the US economy flipped from growing to recession. Yes, it is true unemployment is still low. GDP is still growing and many of the headlines say that we’re fine, but I stand by my indicator and I think that we’ve just crossed an important threshold that could change expectations and outcomes in the economy and in the housing market for months or years to come.
So today on the show, we’re going to discuss what exactly is this Main Street recession that I’ve defined. How does it differ from official definitions, where we stand in these indicators today and what all this means for you and your finances. This is On the Market. Let’s get to it.
Hey everyone, welcome to On the Market. I’m Dave Meyer. I’m the chief investment officer at BiggerPockets. I’m also an economic and housing analyst and a real estate investor myself. Today we’ve got a great and I think really important show for all of you. So we’re going to get right to it. If you listen to this show, you probably know this, but I do not like the definition of recession in the United States. This is a big gripe of mine. I do not make this any secret. I think the word has basically become meaningless in our society for two major reasons. First and foremost, and probably most importantly, there actually is not a definition of recession in the United States that is really cohesive. I know a lot of people think that it is two consecutive quarters of negative GDP growth that is a commonly used benchmark and I’m going to talk about that in a second, but that is not actually any sort of official thing.
That’s just what most people use. The official way that we get recessions in the United States is an entity called the National Bureau of Economic Research and they are responsible with telling us when recessions start and when recessions end and they actually do it retroactively after all that stuff happened so it’s not really the most useful. Now the Ember, National Bureau of Economic Research, they do not use that two quarters of GDP growth. I know a lot of people think this, but look this up. I’ll actually read it to you. On EMBER’s website, they say the EMVR definition of a recession emphasizes that a recession involves a significant decline in economic activity that has spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria, depth, diffusion and duration as somewhat interchangeable. That is while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.
Well, if you’re confused by that definition, welcome to the club. It’s basically just saying we got a bunch of criteria and we decide when it ends. So they are admitting that this is entirely subjective. What is a recession in the United States is entirely subjective. So that is the first reason I think the whole word recession has become corrupted. The second thing is because this definition, the real definition is so subjective, people use a rule of thumb, which makes sense. People are like, “We need something to measure rather than just relying on these academics to decide when we have a recession.” So they use this rule of thumb, which is two quarters of negative real GDP growth. GDP is gross domestic product, measures at the highest possible level all of the macroeconomic activity of an economy and real GDP just means inflation adjusted GDP. And basically a lot of people say that if that is negative two quarters in a row, that’s a recession.
It’s a pretty good indicator. If that happens, that’s not good for the economy. And so it is somewhat useful, but I actually don’t think personally that GDP is a great reflection of how ordinary people think of a recession. If you went up to the average American and asked if we were in a recession right now, they might say no, but then if you ask them if their financial lives are getting better or worse, they’d probably say worse. I mean, literally there are consumer sentiment surveys that show this. It is the lowest it’s been in 70 years. So clearly people are not happy about the economy. Meanwhile, GDP is actually growing. It grew 2% in real terms last quarter. And so in my opinion, there’s just this disconnect. The definition of recession is subjective, but even if you use the traditional measure of GDP, it is totally disconnected from the actual experience of Americans.
Ordinary Americans care about how much stuff costs. Can they afford a home? Are they worried about their job? Can they find a job? Are there wages growing up? Meanwhile, we’re measuring GDP, which if you want to know the definition is consumer spending plus investment, plus government spending, plus the balance of trade, which is equal to total exports minus total imports. Cool. I mean, the formula does have value for businesses, right? For the government, that does kind of matter. But if a recession is supposed to describe a decline in economic activity that spreads across an economy, but we’re only measuring super macro things and we’re not actually measuring what’s happening with ordinary people on a micro personal level, we’re missing a big part of the story. So if you asked me if you were starting from scratch and I was asked, Dave, how would you evaluate a recession or not?
Would you pick GDP? Because I wouldn’t. And I decided I’m not going to because I just am tired of arguing. Everyone argues about, are we in a recession or not? And becomes really political because it’s just such a bad measurement. And so back in November, I spent a huge amount of time thinking about this and trying to determine what exactly is the right way to measure a recession. I wanted it to be simple and easy for everyone to understand. No subjectivity, just a yes or no answer to whether the economic lives of Americans are getting better or worse on average. And what I came up with is simple. It’s a two part rule. If one of these rules is triggered, we’re in what I would call like a yellow alert kind of recession, a mild recession. If both are, it is a full on serious recession.
And here are the two rules. Number one, the question is, are real wages going up or down? Super simple, right? Real wages, if you’ve never heard that term, that’s basically just a measurement. Whether or not incomes for the average American are growing faster or slower than inflation. If real wages are growing up, that is great. Spending power is going up. If real wages are going down, that’s not good because for the average person, they’re able to buy less and less even if their wages are going up a litle bit because inflation’s eating away at their spending power. And to me, this single metric is what matters more than anything. I looked through dozens of possible things to think about as indicators and I can’t think of something that is more important to regular people than this single question. If you are going out and working every day, is your economic life getting better or worse?
If it’s getting worse, kind of think we’re in a recession, right? That is a significant economic decline, at least in my opinion. So that’s rule number one. I’ll be honest, I wanted to keep it at one rule, but I did decide that I also needed a measurement of volume. I know this is nerdy, but we need to know how many people are actually working because if real wages are going up but only 90% of people employed, if there’s 10% unemployment, that’s not good. You can’t just have wages rising on average, but no one is really working. So I put in a measurement of unemployment very similar to the SOM rule. If you’re familiar with that, it’s a very popular recession indicator. I’m a big fan of it. Basically it says unemployment is rising sharply. Specifically in my definition, the three month moving average is 25% higher than the three year moving average.
You don’t need to worry about that. It’s pretty nerdy. Basically it just means is unemployment rising quickly? That’s rule number two. And when you put those two things together, that’s my definition of a recession. These are the things I think ordinary people actually care about what actually matters to them. If one of the rules is triggered, yellow alert, mild recession. Both of them are triggered, red alert, significant recession. And guess what? As of last week, one of them has been triggered. We do have to take a quick break, but after the break, I’m going to explain which trigger has fired, what direction the economy is heading and what this means for you. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer talking about the main street recession indicator that I came up with and that recently just turned from growth to recession. Before the break, I explained that I actually have two rules and if one of them triggers, we’re in a mild recession, both of them trigger, we’re in a more significant one. Luckily, only one of them has triggered and it is the real wage growth trigger. It’s the one I think is the most important right now. And as of last week, real wages are now negative. Average hourly earnings grew 3.6% year over year in April 2026, which on its face sounds good, right? That’s pretty good. If you just look at that in isolation, 3.5% year over year wage growth, it’s great, but inflation hit 3.8% annually in April 2026. It’s the highest level it’s been since May of 2023, big jump in the last couple of months and inflation’s just getting worse, right?
Actually, if you annualize the last three months, you extrapolate February, March, April together. It’s on pace to be over 7%. Hopefully that won’t happen, but it’s just not encouraging. And so basically when you do the math, if you look at 3.8% inflation but 3.6% wage growth, that means that real inflation adjusted average hourly earnings decreased from April 2025 to April 2026, right? Wages are now officially losing to inflation. Or in other words, on average, Americans are losing spending power. This is the bad economic outcome that I created this indicator around because this to me is pretty bad. And it’s true though. The good thing is it’s just one month, right? Hopefully inflation will come back down. I personally don’t think that’s going to happen, but I hope I’m wrong about that. There’s no real sign that inflation is slowing down. In fact, it’s accelerated the last three months.
So I see trigger one here, real wage growth turning negative. I think we’re on yellow alert. Normally, if it was just one month, I’d say, let’s see what’s happening. But the trends are kind of clear. I’d be pretty surprised if we saw a reverse next month or the month after that. So I think we are at least in sort of this mild main street recession for at least the next couple of months. Luckily though, when you look at trigger two, unemployment, which I define as the sum rule, but we’ll just talk high level about unemployment because the SOM rule is really nerdy. Basically, this is okay right now. We’re not there yet on unemployment, which is good news. It’s been remarkably stable, honestly. Actually, unemployment as of April 2026 was 4.3%. It’s unchanged from the prior month and so things are pretty stable. This trigger has not fired.
I have been continuously impressed that the unemployment rate hasn’t gone up more. With all this doom and gloom about the labor market, some of which I admit I do buy into and I think that there is risks in the future, but the unemployment rate hasn’t gone up that much. The labor market has been remarkably resilient. I will say though, if you listen to the show, you know that I personally believe that labor market data is a bit tricky. I don’t think there’s any one good indicator that tells the whole story, including the unemployment rate. It is tracked in a very specific and unique way and it tells a story. It does not tell the whole story. If you look at other labor data though, it does show some cracks starting to form. So again, not there yet, but like for example, if you look at the U6 measure, this is just the measure of labor underutilization, which sort of like accounts for people who want to work full-time, but they’re working part-time instead, that has gone up to 8.2%, so that is high.
If you look at the number of people, just total part-time work that is rising, it rose a lot, almost 10% in April and those are people who prefer full-time work but can’t find it. So overall, labor market doing okay, but it’s something that we have to keep an eye on. But big picture here by my indicators, and again, I made this up, but I do believe these are super important indicators for ordinary Americans and for real estate investors, because if ordinary Americans finances are struggling, this is going to trickle into the rest of the economy. His is going to impact other parts of the economy, whether it’s housing or anything else. So a lot of you would probably think, “Dave, you made this up. GDP is going up so we can’t actually be in a recession.” Well, first and foremost, again, GDP is not the official definition of recession.
There is no definition. So if everyone gets to be subjective about it, I get to be subjective, right? So that’s why I made up my own indicator. But there is some truth to this, right? GDP is up. That is good news. I don’t want to totally discount GDP growth because all things being equal, we want GDP to be going up. That is good for the country. That means the pie is getting bigger. Actually, in Q1 of 2026, last quarter we have data for, it grew in real inflation adjusted terms at 2%, which isn’t great, but it’s not bad. It’s pretty solid. But I actually think GDP used to be more useful as an economic measurement. When people were more working in manufacturing, for example, the GDP formula takes that into account pretty heavily. What it doesn’t do is really talk about one, how the pie is being divided, or two, what pieces of the pie are actually growing.
And right now, I feel like that part is really important because almost all of the growth that we’re seeing in GDP, literally all of it is coming from on single sector and that is infrastructure spending on AI. In Q1 2026 alone, last quarter when it grew 2%, which is solid, AI related capital expenditure was responsible for approximately 75% of US growth. All the growth, 75% of it came from that one thing. If you actually stripped out what basically six companies are spending on building data centers, growth was effectively flat. And if you look at who’s actually doing this spending, again, it is super, super concentrated just through a couple of companies. It’s Amazon, it’s Alphabet, it’s Meta, it’s Microsoft, it’s Oracle. They’re spending $805 billion in capital expenditures and that’s actually supposed to go up next year, by the way, to 1.1 trillion. And I think this is a really important example because these companies, huge, valuable companies to our economy, right?
They’re investing a lot of money back into the economy, which does have some value. They’re also laying people off right now. And so this is why GDP is not a great measurement of what’s going on for normal people, right? These companies spending a lot of money on data centers, which don’t really employ a lot of people, laying off people at the same time. And so this is why we have such a disconnect with what we hear with recessions and GDP and what is actually happening with normal people. I am not saying GDP is useless. I just think if we’re defining a recession and we’re talking about recession, normal people talking about recession, GDP is maybe a part of that story, but to me is a less important story than what’s actually going on in American households and in Americans’ pocketbooks. So all in all, just summary of this by my indicator, yes, we are in a recession, a mild one right now.
Again, it’s only been one month, only one of the two triggers have fired, but I do think this matters. I do think this is going to affect real estate investors. I think it is going to impact the rest of the economy. And I’m going to talk about how and what real estate investors should be thinking about and doing right after this quick break. We’ll be right back Welcome back to On The Market. I’m Dave Meyer today talking about my new recession indicator, Main Street Recession, and why I believe we are at the beginning of at least a mild Main Street recession. Just as a recap, my thesis is that when real wages are going down and spending power is going down for the average American, we’re in a recession, that is a negative economic environment and whether or not you think GDP is more important or not, I personally believe that this is going to impact our economy perhaps more than what is going on with GDP right now.
I just want to go over a couple of things I’ve been thinking about and some advice at least on what you should be thinking about and doing in the months to come. First and foremost, remember, if you hear people talking about a recession, are we in a recession or not? Remember that that is entirely subjective and it means almost nothing at this point, right? It really doesn’t. It’s not even defined by GDP. It’s just whether a bunch of academics decide we’re in a recession or not. So instead, I really encourage you to track the metrics that actually matter to you and to your business. And this is going to be different for everyone, but the stuff that I look for in my own investing and in my own decision making, I already told you the big one, which is real wage growth. I think this is going to be a major indicator of the economic future for months to come.
If we continue to see negative real wage growth, I believe that we are going to see that spread perhaps to GDP, to consumer spending, perhaps to lower corporate profits. I’m not saying this is going to be a disaster, that this is going to be some severe recession. We don’t know that yet. It’s one month, right? But this is something super important to pay attention to, obviously with the rest of your investments for your job and everything like that. But as a real estate investor, if you start seeing real wage compression, if this comes down, that affordability challenge that we’ve been talking about for four years on this show, that gets worse, right? Both for renters and for home buyers, right? That could negatively impact rent growth, it could negatively impact occupancy rates, it can negatively impact home prices. This is a super important thing. I think honestly, not to knock on anyone, but I think it’s an overlooked element of the housing market that I don’t hear a lot of other analysts talk about.
They talk about interest rates and home prices, super important, right? But we always on the show when we talk about affordability and why I think it’s so important, it’s a three-legged stool. There are three pieces to affordability. It’s mortgage rates, it’s home prices, and it’s wage growth. This is not a coincidence. This is something we’ve been talking about for a really long time and it’s why a lot of times when I see some of these doomers or people making bad predictions who just look at rates or just look at prices, you got to look at all three of these things together. And I believe that now, unfortunately, this is the third leg of the stool to turn negative for the housing market, right? Prices, super high. Mortgage rates. By historical standards, they’re not super high, but compared to recent times, they are high and now real wage growth is going negative.
These are three big challenges for affordability. I know people like to say, “Oh, inflation prices are going to go up.” No, they’re not. I already did a whole episode on this and the difference between types of inflation, but even if we have inflation like we do now, that does not mean home prices are necessarily going to go up. The times that you see home prices go up with inflation is when you have demand pull inflation. That’s when you have a lot of people want to buy a limited amount of goods. That’s like what happened during COVID. But the type of inflation that we have right now is called supply push. It’s because input costs are going up like oil, like plastic, like fertilizer, prices like beef, like coffee, right? Those prices are going up and then the prices get passed along to consumers, not because there’s so much demand, but because the production costs for suppliers are going up and this is not associated with real estate prices going up.
And so this is why real wage growth is so important to me right now into the housing market is because it was the on part that was helping the housing market. Even with higher mortgage rates, even with high prices, this was helping us slowly eat away at the affordability challenge. Now it’s hurting and it could be for the foreseeable future. So this is why I think home sales are going to stay slow this year. This is one of many reasons I’ve been saying for a while, expect home prices to stay close to flat this year. My projection’s actually been for modest declines on a national level and I’m sticking with that. It’s also why I expect rent growth to stay low. I know every other forecaster is out there saying rent growth is going to pick up this year. We’re going to get through the supply glut of multifamily.
And I think there might be a litle bit of rent growth this year, but people are acting like it’s going to rescue the industry. I’m sorry, but it’s probably not. I think rent growth is probably going to be pretty slow. People cannot afford higher rents, especially if real wage growth is going down. I’m sorry to be negative, but I just think I look at this stuff all the time and when you look at it, just where does the money come from, right? It’s not coming from rate cuts. Actually, I’m recording this on May 19th right now. The 30 year bond yield just hit the highest level it’s been since 2007. That’s inflation fear, right? That is real inflation fear. That is going to keep mortgage rates up. I don’t care that Kevin Warsch is coming in. I don’t care that people think he’s not going to be independent.
There are 12 voting members on the FOMC and I just don’t think rates are coming down. Even if they cut rates, bond yields might go up because of that would maybe increase inflation fears, right? Mortgage rates could go up. We’ve already seen that. So I’m sorry to be pessimistic, but my job here is to be honest with you. And I think that this main street recession that we are entering is going to hurt rent growth. It is going to hurt the housing market. Not dramatically. I just don’t think we’re going to get the recovery. I don’t think it’s going to get a lot better this year. Hopefully later this year, maybe next year, right? I don’t think there’s going to be a crash. Rents aren’t going to crash unless we see like a massive spike in unemployment. That’s the one caveat, but we haven’t seen that.
And so I just want you to be aware of this so you know what to do. And if you’re asking me or asking me what I’m going to do, it’s number one, optimize for cashflow. Cashflow gives you option. You want options in time like this. I’m still absolutely going to look at buying. I think good deals are coming. If we start to see a pullback in home buyer demand, we might see increasing inventory. Days on market are already going up. This means there’s going to be better buying opportunities, but I expect appreciation to be slow and so I want to optimize for cash flow and long-term growth. That’s number one. Number two, focus on occupancy rates instead of rent growth. Everyone during COVID was so obsessed with rent growth and it’s great. I mean, it helps your business a lot when things are going up.
I personally am going to focus much more on keeping good tenants and not raising rents rather than rent growth. To me, that is much more important for my business, for the long-term stability of the assets I own. And it’s a recommendation I make for almost everyone. And if you are way under market rent, you’re stabilizing something, that’s different. But trying to push up rents by 25, 50, 100 bucks, probably not worth it in this environment, at least for me. Third thing that I’m personally doing a good amount of is stacking cash, because I think the opportunities are coming. I am saying I don’t think the housing market’s going to do well. I don’t think rent growth is going to be there. That is negative or it’s neutral or negative for existing properties, but buying opportunities are going to come. These are the kind of times when buying opportunities come.
And so I’m trying to create some dry powder, repositioning certain assets, selling certain assets, because I think good buying opportunities are going to come. I think they’re going to come first in the multifamily space, but more will come in the residential space. It’s not going to be 2008, not at all. I don’t think we’re getting prices like that maybe in our lifetimes again, but I do think better buying opportunities are coming and stacking cash makes sense. So that’s just a couple of my pieces of advice. And then lastly, before we get out of here, I’ll just tell you a couple of things that you might want to keep an eye on. Right now where we’re at with negative real wage growth, I think this is a problem. I’ve hopefully clearly explained that, but we don’t go into like a red flag serious recession where I’m worried about significant declines in home prices or rent prices unless we get much higher unemployment, especially if we have inflation high and unemployment starts rising.
This is the stagflation scenario I’ve been talking about for a while. It is getting, in my opinion, more likely we are absolutely not there yet. Inflation is up or at 3.8. I would place a bet that it’s going to start with a four next month, but unemployment has remained remarkably stable. And so as long as the labor market holds up, I think this remains a sort of mild negative economic outcome. But if we start to see unemployment go up, that’s bad. That is a really bad economic situation because it ties the Fed’s hands. It ties policymakers’ hands. You can’t raise rates because that will hurt the market, but you can’t lower rates because that will make inflation even worse. So it can be a really challenging situation. And so if you’re worried, this is sort of the confluence of things that I think could take us from what will be a frustrating, difficult economic time, but one where home prices, rent stay pretty much stable, they’re just not going to get better.
Whereas where the real risk comes in is that stagflation scenario. And so we’re not there yet, but that’s the thing that I’m personally going to keep an eye on and it’s something I will keep updating you all on as often as makes sense on this show. If I had to guess, I think we’re in for several more months of real wage losses and we’ll stay in this yellow alert recession for a while and I think it can spread. I think this might spread a little bit to consumer spending. Again, don’t think it’s going to be some massive crash, but I do think that this could start to create a more general malaise in the environment. We’re already seeing low consumer sentiment. We’re seeing credit card defaults go up. So we’re already seeing some cracks with consumers and this was one real bright spot. Real wage growth going up for years was a real bright spot of the economy.
So having this turn I think is going to spread a little bit, but I don’t see some red alert situation on the immediate horizon, at least not next two or three months, but it’s something we’re going to need to reassess regularly, which we will always do on the market. That’s our show for today. I would love to hear your thoughts on my indicator. I’m looking for feedback on it, always looking for ways to improve it. So let me know in the comments. Thank you so much for listening to this episode of On The Market. I’m Dave Meyer. I’ll see you next time.