Are we thinking ourselves into a recession?


Are we thinking ourselves into a recession? How predictions and doomsaying can affect real economic behavior

If you put a CEO in front of a microphone these days, they’ll start talking about a recession. Whether it’s JPMorgan Chase CEO Jamie Dimon warning of an economic “hurricane” or Elon Musk saying he will cut Tesla’s staffing by 10 percent, America’s corporate chieftains are a pessimistic bunch.

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A survey by the Conference Board of CEOs reports that their confidence is at the lowest level since the pandemic began in 2020. About one-fifth of the CEOs surveyed “said they expected economic conditions to improve over the next six months,” while 60 percent said they thought they would get worse — dramatic moves down and up from six months ago. American consumers aren’t that different. The closely watched University of Michigan consumer sentiment survey is at levels near where it was during the worst of the Great Recession and well below any point of pandemic lockdowns. Almost 80 percent of the consumers surveyed “expected bad times in the year ahead for business conditions.” But with all this recession talk, it could lead to a recession becoming a self-fulfilling prophecy.

Does talk of a recession make one happen?

The economic headwinds are very real. The Federal Reserve is raising interest rates which, as intended, has taken a hammer to the housing market and stock market. Oil prices are up 60 percent this year while gas prices are up over 50 percent. But ultimately what happens in the economy, whether it’s spending by households or investment decisions made by businesses, arises from subjective evaluation of how things will go in the future. Those evaluations are informed by data; they’re not entirely determined by them.

“The fear can lead to the actuality,” Yale University economist Robert Shiller told Bloomberg, warning that a “self-fulfilling prophecy” could result from widespread expectations of an economic downturn.


Some corporate executives are worried that all this recession talk may make a recession more likely to arrive. “I have this fear that we talk so much about recession that we may actually create one on our own,” Cisco CEO Chuck Robbins told CNBC in late May.

“High business expectations play a role in recessions. Firms’ high growth expectations that are not met contribute to recessions. For now, there is no visible change in companies’ behavior at the macro level although business expectations have come off their highs,” Putnam Investments said in a note. “Businesses have become much more concerned about the outlook as a result of the rising cost of living and drop in demand, as well as the increasingly aggressive interest rate path outlined by the Federal Reserve and the concomitant deterioration in broader financial conditions. Business confidence is now at a level which would typically herald an economic downturn, adding to the risk of recession,” S&P Global Market Intelligence Chief Business Economist Matt Williamson said in a note accompanying a survey showing a contraction in new orders made by businesses.

But American consumers aren’t spending like a recession is around the corner

Americans’ feelings about the economy are about as bad as they’ve ever been, but when you look at some types of spending, it’s off the charts. The airline industry, beset by the same high fuel prices as everyone else, is facing the problem of not having enough staff instead of not having enough customers. Nike, for example, had higher earnings than analysts expected, and its Chief Financial Officer Matthew Friend told analysts on a call Monday, “We continue to closely monitor consumer behavior, and we’re not seeing any signs of pullback at this point in time.”

It might sound counterintuitive, but for households this makes some sense. After all, despite the portents of recession, many Americans are in a decent personal financial situation. While overall household wealth has only just started declining thanks to the fall in the stock market, many Americans have seen increased home equity and are still sitting on savings accumulated during the worst of the pandemic. Businesses, outside the venture-capital-funded technology sector, are still hiring, and layoffs are still sparse.

“The thing that matters the most for consumer spending is income, having money to spend,” said Claudia Sahm, a former Federal Reserve economist and the founder of Sahm Consulting. “As long as you’re in a situation where people have money, they got a raise, their job is going well, they put money in the bank —that’s what drives spending,” Sahm said.


Businesses, theoretically, work on longer timelines, making decisions about investing and hiring that incur large upfront costs and only pay off over years. When they’re gloomy — or even uncertain — about the economy, they may cut off investments or hiring they would do in more pacific economic times. But on the other hand, the latest figures on investment in buildings and software show steady growth. “I don’t care how much gloom and doom are in the stock market. If you have customers walking in the door, you’ll keep people on payroll,” Sahm said.

Thanks to Alicia Benjamin for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.