The Hidden Recession: Why Official Stats Don't Tell the Whole Story

WASHINGTON, D.C. – December 04, 2025 – As the year draws to a close, the American economy appears to be telling two vastly different stories. In one version, buoyed by official government statistics, full-time workers are seeing real wage gains that outpace inflation. But in a starkly different narrative, one in four American workers is functionally unemployed, and the earnings of middle-income families are eroding, signaling a deepening affordability crisis just as the holiday season begins.

This divergence comes from a new analysis by the Ludwig Institute for Shared Economic Prosperity (LISEP), whose Q3 2025 report was delayed for nearly two months by the recent, record-long federal government shutdown. The findings challenge the optimistic narrative presented by headline numbers and suggest that for a vast portion of the country, the economic reality is far more precarious than commonly understood.

A Tale of Two Economies

The central discrepancy lies in how economic health is measured. According to the Bureau of Labor Statistics (BLS), median weekly earnings for full-time wage and salary workers rose 4.2% year-over-year in the third quarter, a healthy margin above the 2.9% inflation rate. This suggests that, on average, the purchasing power of these workers is increasing.

However, LISEP’s True Weekly Earnings (TWE) metric, which captures a wider swath of the labor force including part-time workers and the unemployed who are actively seeking work, tells a different story. The institute’s data shows median TWE was effectively stagnant, declining 0.1% year-over-year. This gap highlights a core criticism of traditional metrics: by focusing only on those securely employed full-time, they risk masking the struggles of millions who are underemployed or cycling in and out of work.

The pain is not distributed evenly. The bottom 25th percentile of earners saw their weekly earnings fall 2.1% since last year, dropping to just $617 a week. Meanwhile, the 75th percentile saw a 2.1% increase. "The data make clear that America's low- and middle-income households are being squeezed from both sides: essentials are getting more expensive, while wages have struggled to keep up," said LISEP Chair Gene Ludwig in the report. "Taken together, these indicators highlight a deepening affordability challenge for working families."

Redefining 'Unemployed' in the Modern Workforce

Perhaps the most jarring figure from the report is the True Rate of Unemployment (TRU), which LISEP places at a staggering 24.9%. This metric redefines the concept of unemployment to better reflect what it calls “functional unemployment.”

Unlike the official BLS unemployment rate, which primarily counts those without any work who are actively looking, LISEP’s TRU includes three groups: the jobless, those who are working part-time but want and cannot find full-time work, and anyone—full-time or not—earning a poverty-level wage, which LISEP caps at $26,000 a year for 2025.

The BLS itself publishes alternative measures of labor underutilization. Its broadest measure, the U-6 rate, includes discouraged workers and those working part-time for economic reasons. Yet even that figure is consistently and significantly lower than LISEP's TRU, highlighting a fundamental disagreement over what it means to be gainfully employed in America today.

This methodological debate is at the heart of modern economic discourse. Proponents argue that metrics like the TRU offer a more honest assessment of economic well-being, reflecting the lived experience of those in low-wage jobs or the gig economy. Critics, however, caution that incorporating a subjective standard like a “poverty wage” threshold risks turning a statistical measure into a policy argument. Regardless, the fact that one in four workers cannot find a full-time job that pays above the poverty line is a powerful statement on the state of the labor market.

Data Blackouts and Deepening Divides

The release of this sobering data was complicated by the 43-day federal government shutdown that paralyzed Washington from October 1st to November 12th. The shutdown suspended all BLS operations, delaying crucial economic reports and, more critically, preventing data collection for the month of October. This has created a permanent “blind spot” in the nation's economic record, forcing institutions like the Federal Reserve to rely on alternative data to gauge the economy's trajectory.

This data vacuum makes the disparities revealed in LISEP’s Q3 report all the more concerning. The economic divergence is not just statistical; it is starkly demographic. According to the institute, women saw their median weekly earnings fall 0.2% over the last year, while men’s earnings grew by 2.2%. The racial gap is just as pronounced: Black workers experienced a 1.4% year-over-year decline in earnings, while White workers saw a 1.7% increase.

While their methodologies differ, official BLS data on full-time workers also corroborates the existence of these deep-seated disparities, showing significant and persistent wage gaps by both gender and race. This convergence of evidence from different sources suggests that whatever economic gains are being made, they are not being shared equally.

As households finalize their budgets for the holiday season, this disconnect between headline optimism and on-the-ground financial strain becomes acute. Broader economic indicators show that while aggregate consumer spending remains strong, consumer confidence is weak, with a majority of Americans citing inflation and economic concerns as reasons to rethink major purchases. This aligns with the reality LISEP’s data suggests: a top-line economy propped up by higher earners, while a significant portion of the population struggles with stagnant wages and precarious employment.

As policymakers navigate a landscape blurred by data gaps, the crucial question remains: which map of the economy are they using, and who is being left behind in the territory it describes?