Are we in a recession? Not yet, economists say. This is what you should know.

What Chicagoans continue to grapple with the highest inflation seen since the early 1980s, a shrinking economy raises fears that a recession is just around the corner.

In June, the consumer price index reached 9.4% in the Chicago area. Food prices increased more than 11% and housing costs increased 8.6% compared to the same month last year.

According to AAA, average gas prices in the state have fallen from about $5.31 a gallon to about $4.53 a gallon over the last month, but are still above the $3.42 a gallon average this time last year.

Wages and salaries have risen nationally (up 5.3% in June compared to last year, according to the Bureau of Labor Statistics), but they still haven’t kept up with inflation. That means real wages are actually falling, the economists said.

The Federal Reserve has continued to raise interest rates, most recently last week, in an effort to fight inflation, but economists say the agency is walking a fine line between slowing the economy enough to control prices without pushing it into a recession.

This is what you should know.

Not yet, economists told the Tribune. Gross domestic product shrank for the second consecutive quarter last week, a benchmark economists often use to determine whether the country has entered a recession. But experts also look at other economic indicators, such as unemployment and consumer spending, and those aren’t raising alarm bells right now.

“I think we’re quickly going to one, but we’re not quite there yet,” said Phillip Braun, a clinical professor of finance at Northwestern’s Kellogg School of Management.

Braun expects the country to enter a recession in the third quarter, during which he expects more negative economic growth as well as a weakening labor market. “I think we’re at the tipping point for the job market,” he said.

Austan Goolsbee, an economics professor at the University of Chicago Booth School of Business, said he doesn’t think the United States is in a recession, but that it could enter one “easily” in the near future.

“If you look back to World War II, there have been 14 recessions,” Goolsbee said. “And by far the most common cause of recessions is the Fed raising interest rates faster than the economy can handle.”

In an earnings call Thursday, commercial real estate giant CBRE predicted a recession in the fourth quarter preceded by an economic slowdown in the third quarter.

“Our baseline for next year is that we will be in a mild recession,” the firm’s chief financial and investment officer, Emma Giamartino, told investors.

Higher interest rates are the Fed’s way of trying to control inflation. The agency has raised rates four times since March, most recently raising rates 0.75% last week.

The idea is that by making borrowed money more expensive, people will spend less, and that decrease in consumer demand will drive down the prices of goods and services that have skyrocketed this year.

The danger, economists say, is that raising interest rates too aggressively and diminishing access to credit could tip the United States into a recession that would lead to layoffs and rising unemployment.

“You have to be aware that it could go beyond what the economy can handle and mess up the soft landing,” Goolsbee said. “If you’re raising rates as fast as they’ve been, there’s a huge danger you’re not going to be able to make a soft landing.”

The Fed hopes to curb inflation by slowing demand. But you have no tools to affect supply.

“You can also have higher prices because of shortages or lack of supply,” said Peter Bernstein, chief economist at RCF Economic & Financial Consulting in Chicago and an economics instructor at DePaul’s Driehaus College of Business. “Higher interest rates are not going to do much. to solve the supply side of the market”.

Food prices, Bernstein noted, have been affected by the halt in grain exports from Ukraine, which resumed on Monday.

“That’s not going to be solved by raising interest rates,” Bernstein said. “That will be resolved through some kind of resolution of the circumstances in Ukraine or just some gradual adjustments that will take place in other grain producers.”

Wheat prices in the US remain high, although the world price of wheat has dropped, Braun said. The rise in U.S. prices could be explained in part by the war in Ukraine, which caused higher demand for U.S. wheat globally, though other factors are likely at play as well, he said.

Braun said interest rate increases are unlikely to leave a mark on inflation until early to mid-2023.

The abundance of job openings at this stage of the pandemic has given workers the opportunity to choose better and better paying jobs and pressure employers to court them. A recession would tip the balance of power from employees toward their bosses, experts said.

“There’s no question that they will lose that clout,” said Robert Bruno, director of the labor studies program at the University of Illinois.

In a recession, the upward pressure on wages will go away and jobs will be harder to come by, Braun said.

The construction and manufacturing industries may be among the first to feel the effects, he said. Home sales are down 21% from January to June, according to data from the National Association of Realtors.

Layoffs in the housing and loan sectors have already started. Among those reporting job cuts in recent months are online mortgage company LoanDepot, online real estate broker Redfin, Compass and Rosemont-based Interfirst Mortgage Co.

The nation’s largest bank by assets, JPMorgan Chase, has laid off hundreds of people from its mortgage unit and reassigned hundreds of others.

Many employers have raised wages during the pandemic, particularly in the restaurant, retail, and travel industries. Some big employers raised wages at $15 per hour and up, even though the federal minimum wage is $7.25.

According to the Bureau of Labor Statistics, about a quarter of US private-sector companies have increased wages or paid bonuses to employees because of the pandemic. In the lodging and food service industries, that proportion was higher than 45%.

Bruno worries that the Fed’s approach will hurt workers who were just beginning to see net wage increases for the first time in four decades.

Legislative solutions focused on creating high-quality jobs and increasing productivity are needed to meet high demand. for goods and services instead of suppressing it, he said.

“This is something that elected leaders in Springfield need to fix and address,” Bruno said.

Illinois’ seasonally adjusted jobless rate was 4.5% in June, and the Chicago metro area’s was just under 4.3%, according to the Illinois Department of Employment Security.

Those are healthy numbers, the economists said, and both are the lowest since March 2020. For comparison, the Chicago-area unemployment rate was 6.9% last June and the state’s was 6 ,5%.

Still, Illinois was tied for the fifth-highest unemployment rate in the US in June, according to the Bureau of Labor Statistics. The national unemployment rate held steady at 3.6%.

Goolsbee said several factors can affect a state’s unemployment rate, including the age of its population and what its top industries are. In farm and rural states, he said, people tend to leave if they can’t find work, which keeps unemployment in those states low.

“Illinois is a state with a large urban and suburban population. I think it’s the case that even if you go back before COVID and before this business cycle, average unemployment in Illinois was probably higher than it was in Iowa or Indiana,” Goolsbee said.

Braun said the 4.5% unemployment rate was about average for what Illinois has seen since the 1980s.

The leisure and hospitality industries, who are critics in Chicago, they were particularly hard hit during the pandemic, Bernstein said. Those jobs are coming back, but they haven’t fully recovered, she said.

Leisure and hospitality was the industry with the highest monthly job growth in June, with an increase of 9,900 jobs, according to IDES.

Other large Illinois industries, such as airlines, logistics and manufacturing, have also been hit hard by the pandemic, Goolsbee said.

“We’re not totally out of the woods on these things, and I think Illinois has suffered from some of that,” he said.

The Associated Press contributed.