- There has been growing talk of a potential recession in the US, which could begin by 2020.
- Citigroup CEO Michael Corbat thinks focusing on the risk of a downturn could ultimately lead to one.
- Drops in consumer and business confidence can weigh on activity.
Could focusing on the risk of a downturn ultimately lead to one?
The chief executive of one of the country’s largest banks thinks so.
When asked at a congressional hearing on Tuesday what the biggest threat to the US economy was, Citigroup CEO Michael Corbat responded: “Our ability to talk ourselves into the next recession.”
In the economy, the idea of a self-fulfilling prophecy of sorts isn’t new. Expectations among businesses and consumers can have widespread effects on spending and investment.
“We clearly see a disconnect between what we see in our business on an anecdotal basis and what the markets are saying,” he said on the bank’s fourth-quarter earnings call.
With growth expected to slow across the globe, however, that could be a tall order. In the US, an increasing number of forecasters think the economy could enter a recession by 2020.
From retail sales to manufacturing, a series of surprisingly soft economic data this year appears to have weighed on how Americans view the economy. And recessions have historically started with corresponding drops in consumer confidence, said Austan Goolsbee, who chaired the Council of Economic Advisers in the Obama White House.
“Usually those drops have at least some tie to events but, in theory, anything that freaks people out can start a recession,” he said.
Concerns grew louder last month when the Treasury yield curve inverted for the first time since 2007, the start of the global financial crisis. Seen as a leading recession indicator, the negative spread between 3-month and 10-year yields aggravated concerns about the economy.
For now, though, economists note that the fundamentals remain solid. The labour market rebounded after anemic hiring in February, with the unemployment rate near multi-decade lows and signs of upward pressure on wages.
“There’s very little indication that the economy is running out of steam,” said Ryan Sweet, an economist at Moody’s Analytics. “We’re going through a period of adjustment and settling down into a more sustainable pace.”
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