All the talk flying around about a looming recession is starting to spook consumers.
On Friday, the Commerce Department said that retail sales fell 1 percent in March from February, the second straight monthly decline, while a widely watched survey by the University of Michigan found that consumers are more downbeat about the economy than they were a year ago.
There are plenty of reasons for people to be nervous. Job growth is healthy but slowing. Home prices are falling, even in tight markets like Boston. And banks may curtail lending following fatal depositor runs at Silicon Valley Bank and Signature Bank.
Adding to the warnings of many private economists, the staff of the Federal Reserve now anticipates a “mild” recession later in the year, according to notes from the central bank’s March 21-22 meeting released last week.
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Notably, consumer demand for goods and services has been resilient over the past few years, thanks in part to federal pandemic aid. Confidence hasn’t tanked despite the chaos caused by COVID, social turmoil sparked by the murder of George Floyd, political unrest that culminated with the Jan. 6 riot at the Capitol, and an extended period of steep inflation.
That’s pivotal because consumer spending powers nearly 70 percent of the US economy.
Consider: The Conference Board’s expectations index — based on consumers’ short-term outlook for income, business, and labor market conditions — has been signaling a recession for more than a year. Yet the economy continues to chug forward, and unemployment has dropped to a near-record low of 3.5 percent.
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Still, there’s a real and not insignificant risk that consumers finally retreat in the face of higher interest rates and constant talk of economic doom. The current slowdown could snowball into a full-blown contraction.
Mark Zandi, chief economist at Moody’s Analytics, has noted that the economy hinges on faith — the faith of consumers that their jobs are secure and the faith of businesses that their customers will continue to buy. When that faith wanes, “A self-reinforcing vicious cycle — a recession — takes hold,” he told clients at the start of the year.
Zandi doesn’t see an outright recession. Instead, he’s forecasting a scenario of little or no growth in which the jobless rate climbs to 4.3 percent by the end of next year. Based on the current size of the labor force, that would mean about 1.3 million workers losing their jobs.
It’s never good when people are thrown out of work. But unemployment was 4.6 percent before the 2001 dot-com recession hit. In the fallout from the brutal Great Recession, the jobless rate more than doubled to 10 percent in 2009.
Since 1948, unemployment has averaged 5.7 percent. In those 75 years, there have been 12 recessions — one about every six years on average.
So where do we stand today?
First, there’s a reasonable chance of another recession in the next 12 months — 61 percent, according to a recent survey of economists by the Wall Street Journal.
Second, that recession is expected to be mild — more like the dot-com meltdown, which lasted eight months and trimmed gross domestic product by just 0.3 percent, than the Great Recession, which dragged on for 18 months and chopped total output by 4.3 percent.
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Finally, Americans are worried about their financial future even though unemployment has fallen back to where it was before the pandemic.
That’s understandable amid the pain of inflation and the Fed’s tough-love campaign to snuff it out. Two bank runs and big layoffs at high-profile tech and media companies haven’t exactly been confidence boosters.
We’re rattled. But it remains to be seen just how far we might fall into that vicious cycle of lost faith known as a recession.
Larry Edelman can be reached at larry.edelman@globe.com.