Recession Talk Is Exaggerated

Manifestation is an exercise in self-motivation. By focusing one’s thought on an outcome, we steer our lives toward that end. It can be as simple as reframing a future thought with greater certainty, like starting a sentence with “When I get promoted” instead of “If I ever get promoted.”

Economically, we often see observers manifesting a poor outcome. Many in our audiences are no longer asking about the chance of a recession, but rather whether one has already started and how bad it will be. Among the chief sources of concern are:

  • Financial assets are having a bad year. After an exceptional run that began in the spring of 2020, many equity indices endured a correction this spring, losing 20% or more of their value. Bond markets have also struggled in the context of persistent inflation, tighter monetary policy and elevated uncertainty.

However, stock markets do not represent the full economy. Past selloffs have been unreliable indicators of economic contraction.

Market Returns 2022 chart

  • The invasion of Ukraine caught most observers by surprise. Physical damage has been confined to a portion of Ukraine thus far, but the risk of a spreading conflict still looms, and the humanitarian consequences weigh on our consciousness. The direct impacts are of greatest concern to nations that are closest to the conflict, but indirect effects are being felt worldwide.

    Risks from Ukraine traveled to the rest of the world immediately through energy markets, with oil prices settling at a higher level. Producers were burned when demand suddenly dropped in the 2020 downturn and have not responded to higher prices with greater supply yet. The results of all this are apparent in vehicle fuel prices, which have caused alarm among consumers.
  • Energy and food prices are the tip of the iceberg of widespread, persistent inflation. Each month brings reports of higher prices in nearly every sector of every country, reducing real income. Wage gains across developed markets have not kept pace with prices: For example, average hourly earnings in the U.S. have risen by 5.2% in the past year, but consumer prices are up by more than 8% over that interval. Rent is rising at a particularly fast clip, squeezing those who do not own homes.

High inflation and falling stock markets are a recipe for low consumer confidence.