A Rolling Recession Is the Best Kind

A series of sectoral downturns may help subdue inflation without significant job losses

You’ve heard about a hard landing of the economy. That’s a full-blown recession where millions of jobs are lost. And you’ve heard about a soft landing. That’s where the economy slows to a nice, steady pace without decimating the labor market as inflation comes down.

Now there’s a new economic meme making the rounds. It’s called a rolling recession, and it’s a bit of a hybrid. One industry suffers a contraction, then another, but the economy as a whole never swoons, and the job market largely holds up. “Industries and sectors take turns going down, as opposed to declining more or less all at once,” is how Loyola Marymount University economics professor Sung Won Sohn puts it.

That framework doesn’t explain everything that’s going on with this puzzling post-pandemic economy, but it’s as good a description as any of what the US has been going through since the Federal Reserve began lifting interest rates from zero in March of last year. And it holds out at least the possibility that the economy will survive its worst bout of inflation since the 1970s without having to endure a contraction.

The first to take the hit, not surprisingly, was housing, the sector most susceptible to the Fed’s rapid-fire rate increases. The industry was especially vulnerable because a steep runup in property prices during the pandemic had already put homebuying out of reach for many Americans. Housing starts, a key gauge of construction activity, fell for a fourth straight month in December and were down for the year as a whole, the first annual drop since 2009.