Increasing anxieties over a recession could be the cause of the next recession, according to Analyticom President Dan Geller, developer of the theory of money anxiety.
Geller’s theory explains that an increase in money anxiety can lower consumer confidence and cause a recession by reducing consumer consumption by just 5%. Since consumer consumption makes up about 70% of gross domestic product, a 5% reduction in spending equals 3.5% of GDP, which is greater than the projected GDP for 2019.
In July 2019, the Money Anxiety Index was flat at 44, the same as June, but slightly higher than May’s 42.7 points. While these figures are relatively low and don’t point to an immediate recession, Geller explained that the constant hype about a recession could increase the level of money anxiety.
“An example of how recession hype can increase peoples' perceived anxiety and reduce their confidence in the economy can be seen in the preliminary August figures of the Michigan Survey of Consumer Sentiment,” Geller explained. “The August index decreased 6.4% from the previous month indicating that the level of consumer confidence in the economy dropped in the first couple weeks of August.”
“Since the Michigan index is based on what people think about the economy, in the form of a questionnaire, it is highly likely that the recent recession hype influenced the respondents' confidence about the economy,” he explained.
Nearly half of experts surveyed by Zillow back in 2018 said they expect the next recession to begin sometime in 2020, according to the company’s Home Price Expectations Survey, a quarterly survey of more than 100 real estate experts and economists.
Since then, the talk surrounding recession has only increased as more and more experts begin to predict a recession by late 2019 or early 2020.
There were several dire warnings this week about the economic dangers posed by President Donald Trump’s ramped-up trade war with China.
“On a scale of 1-10, it’s an 11,” Cowen Managing Director Chris Krueger said in a note to investors, describing the economic ramifications of the trade war.
In July, Zillow’s panel of more than 100 housing experts and economists said the next recession is expected to hit in 2020. A few even said it may begin later in 2019, while another substantial portion predict that a recession will occur in 2021. But unlike last time, the housing market won't be the cause.
Experts also ranked the most likely triggers for the recession as one, two and three – and with that weighting, monetary policy came out as by far the most expected catalyst.
