Recession fears: The odds of a US recession have risen
Recessions aren’t good for anyone. They can derail economic growth, leading to lower investment and spending and often higher unemployment. They can also lead to asset price declines, which are particularly challenging for younger investors who are still saving for their retirement and other goals.
Investors, economists and business executives have grown increasingly concerned about a potential recession as Trump’s on-again/off-again approach to import taxes makes investors wary of the impact. While some economists expect a downturn, others think it’s unlikely that the economy will actually enter one.
The key to avoiding a recession is keeping interest rates low, which can help keep consumers and businesses able to pay their debts. High interest rates can exacerbate a recession by making mortgages, personal and business loans more expensive to service. They can also make it harder for companies to sell goods and services as they try to cut costs by raising prices or laying off employees.
Existing Google search-based indices of uncertainty and general fear are useful measures of market participants’ state of mind, but they have limitations in their ability to isolate and quantify recession fears. We aim to develop a new measure of recession fears that is easily accessible, low-frequency, and more specific than existing measures (John and Li, 2021; Szczygielski et al., 2022). We build our index by examining keywords searched on Google by economic agents. This approach avoids the bias and obfuscation that can occur in a search-based index whose terms are chosen by researchers (Da et al., 2015; Chen et al., 2020).