In this video clip from "The Morning Show" on Motley Fool Live, recorded on Feb. 14, Fool.com Director of Small Cap Research Bill Mann, advisor Jim Mueller, and analyst Sanmeet Deo share some thoughts about what is generally at the core of a recession.
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Bill Mann: Jim. Number. Do you have?
Jim Mueller: Yes, 61.7.
Mann: Just 61.7, not percent?
Mueller: Just 61.7
Mann: Okay.
Mueller: Here is the link. This is the initial read-off of the University of Michigan's gauge of consumer sentiment falling sharply for February. Expectations were 67, so several points higher, and it's the lowest reading since October of 2011. Inflation expectations are higher. Views of current conditions by the consumer. Fastest pace of 40 years for inflation, Americans remain pessimistic about their buying power, except so many things about the economy are showing that it's actually working and growing, and didn't it grow 4.5-6% last quarter? I think it's possible the United States is going to talk itself into a recession.
Mann: Recessions are at their core. This will feed into my number in a little bit. This is why really predicting the short-term movements of the stock market is insane. Because recessions are at their core, a psychological and not a structural happening.
Mueller: Definitely.
Mann: If you want to ask me what the stock market, how well it's going to do between now and Dec. 31, I can answer that question and I would answer that question this way. How are people going to feel about the stock market on Dec. 21, 2022? When you put it that way, it's literally an unanswerable question. Talking ourselves into a recession. Yes. You can talk yourself into a recession by psychologically believing that a trend that is happening that will reverse itself is going to go into perpetuity but you can also talk yourself into a recession by believing that things are terrible.
Sanmeet Deo: Then we won't even know we're in recession until after the fact. [laughs] It's great if you can predict the recession, but you're not even going to know if you're actually right on that prediction till later when at that point, the economy is already probably recovering.
