The economy’s mercurial roller coaster of trade policy and stock market volatility is making some wonder if the country is headed into a recession. After all, recessions are scary. A downturn typically causes layoffs and slows paycheck growth, which can put people on edge about their financial security. This leads to less spending, which can send the economy into a spiral.
The good news is that recession fears have been way overdone, especially compared to previous recession scares. In 2022, for instance, some analysts were flashing a 100% chance of recession — which turned out to be very overdone.
That said, the threat is real. Investors should take the recent volatility in the stock market and economy-related data seriously, but they shouldn’t panic. In fact, there are some reasons to be optimistic about the economic outlook, even though growth is slowing and the odds of a recession have increased.
First, the risk of recession is actually quite low, according to a new metric based on Google search trends. The metric, created by J.P. Morgan Research, takes into account the words searched by economic agents – not just those pushed to them by researchers – which reduces the likelihood of false alarms.
In addition, many economists expect the slowdown in growth to be relatively short-lived and limited in impact. This is partly because the current recession fears are mostly based on lagging indicators, such as the decline in consumer spending and the rise in layoffs.