A recession might be coming just because we keep saying it is

A recession might be coming just because we keep saying it is
U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

For months now, experts have been predicting that there will be an economic recession, particularly in the US. JP Morgan Chase has said there’s a decent chance of a recession, Goldman Sachs has said there’s close to a 50% chance of one, and Wells Fargo said a recession “is more likely than not."

But Mark Zandi, Moody’s Analytics chief economist, says that the US is at risk of a recession – not because of the numbers but rather because of all the talk about a recession on the brink. Zandi joined Bloomberg’s “What Goes Up" podcast to say he doesn’t think a recession is inevitable, even though risks are high. But he does think that all the talk about an imminent recession could affect behavior enough to push the economy over the edge.

See, when there’s a lot of talk about something – in this instance, a looming recession – people start to behave differently. For example, maybe they take fewer risks, stash money away instead of investing it or businesses halt hiring and investments. And it’s that kind of conservative behavior, which isn’t influenced by data, statistics or economic changes, that can cause something like a recession through lower aggregate demand.

Key comments:

A Wells Fargo report by Jay Bryson, the bank’s chief economist, forecast that the economy would shrink by 1% over two quarters in the next year, being “one of the milder downturns in the post-W.W. II era." One upside, he said, was that “because we think the downturn will not be especially deep, we do not expect the labor market to fall completely apart."

“I talk to CEOs, CFOs, investors, friends, family – to the person, they think we’re going into recession. I’ve never seen anything like it," said Zandi. “So when sentiment is so fragile, it’s not going to take a whole lot to push us in."