Will America Talk Itself Into a Recession? Trump’s Advisers Are Worried

But some forecasters agree that fear itself could become a problem. Consumers drive about 70 percent of economic activity in America, and if they become spooked and pull back on purchases, growth could slow more sharply. Stock market losses could unsettle Americans and cause them to clamp their wallets shut.

“If headlines about trade wars and currency wars dominate the media and the airwaves,” then “you could get in this spiral where people lose confidence and stop spending,” said Megan Greene, a senior fellow at the Harvard Kennedy School. Still, she does not expect an outright recession until 2021 in part because the labor market remains strong, making an imminent consumer pullback avoidable.

There is no guarantee the economy will crash into recession anytime soon

By several measures, the American economy continues to thrive, particularly when compared with other rich countries. Unemployment is hovering around its lowest level since 1969, the job market is growing faster than many economists had thought possible, and wage growth is picking up as companies compete for workers. That is leaving average Americans with more money in their pocket and greater wherewithal to spend.

Despite recession chatter, consumers are likely to remain strong as long as their paychecks are growing, said Seth Carpenter, the chief United States economist at UBS.

“If somebody gets a raise and their spouse gets a new job, they’re still going to be spending,” he said.

Households could keep the economy chugging along even as trade uncertainty drives companies to behave cautiously, if recent precedent holds. When growth slowed down in 2016, thanks in large part to an oil price slump that caused a drop-off in business investment, America kept shopping — and the expansion continued.

For all of its importance to growth, consumers’ behavior is historically a poor indicator of where the economy is headed. Shopping habits change quickly and often pull back only after a broader slowdown has taken hold.

Article source: https://www.nytimes.com/2019/08/30/business/economy/recession-trump.html?emc=rss&partner=rss