Aug 02, 2023

The Recession That Wasn’t

Aug 02, 2023
Mark R. Gordon — JD, MPP, CFP®, CFA
Chief Investment Officer
Last quarter treated investors to continuing strong equity returns. Global equites rose over 6% and are now up nearly 14% as of the end of June.¹ Domestic equities saw particularly strong gains: nearly 9% for the second quarter.² Global bond markets held their value: US bonds were down less than 1% and foreign bonds were up less than 1%.³

In our opinion, the largest factor driving these very solid returns is something that didn’t happen: a recession in the first half of the year. For those who don’t recall, the financial media spent the better part of last year warning about a looming recession in 2023. Here are just a few of the headlines from last year:

“Recession Probability Soars as Inflation Worsens,” Wall Street Journal, June 19, 2022

“Economists: Chance of a 2022 recession is rising,”, July 20, 2022

“US economy will soon start losing 175,000 jobs a month, Bank of America warns,”, Oct. 10, 2022

“Bloomberg Forecast: 100 Percent Chance of Biden Recession,”, Oct. 19, 2022

“C.E.O.s Are Talking More About Recession,” New York Times, Nov. 7, 2022

“A Strong Signal That Recession is Looming,” New York Times, Dec. 21, 2022

“Expert forecasts 2023 as a year of ‘economic pain,’” Washington Post, Dec. 30, 2022

Today, we’d like to examine the recession that wasn’t. We explain why we believe the media spent so much time on something that, thus far, hasn’t come to pass. Then we’ll share our thoughts on the toll it takes on investors and why we think it matters.

Why did the media spend so much time on “the recession that wasn’t”?

As we’ve discussed previously, news media get paid to attract readers and/or viewers. Media can be helpful and keep us informed, but they are in the entertainment business. Thus, subtlety and balance tend to give way to certainty and bombast. Moreover, the old saw “if it bleeds it leads” applies to the economy as well: people tend to pay more attention to bad news. And last year there was plenty of bad news to go around: increasing interest rates, high inflation and a war in Ukraine. No doubt, these factors can lead to a recession.

Economics is tricky.

Just because we have an environment conducive to recession doesn’t mean we will have one. Economics classes typically contain two phases. First, students learn how to express very complex, interrelated systems in relatively simple models, e.g., supply and demand, costs vs. benefits, incentives and behaviors. Then, students learn the flaws of those models and the difficulty in predicting real-world events. In the news media, unfortunately, we tend to get a lot of the former and precious little of the latter.

For example, other things equal, increasing interest rates means decreasing economic activity. Higher rates means borrowing money costs more, so companies may become less profitable and/or invest less in the future. Fewer people buy homes and those homes tend to be less expensive. Higher rates also mean investors get paid more to keep their money in cash or government bonds, meaning less capital in the equity markets.

From this, it’s easy to draw the conclusion that “high rates = recession.” Prominent economist Brian Wesbury espoused the following doctrine:

Every single recession in the United States for the last 80 years has been preceded by a tight Federal Reserve policy – in other words, excessively high interest rates.”

The Wall Street Journal named him the United States’s best economic forecaster in 2001. The quote above was taken in 2008 as the commenter maintained – stridently – that we were neither in, nor headed for, a recession in 2008. Of course, we were on the precipice of the worst recession in four generations.

The quote is a tad dated, but we observed similar commentary last year. As the US Federal Reserve (the “Fed”) increased interest rates, financial pundits suggested there must be a high (or certain) chance of a recession. But that simple analysis missed a very important point: the Fed raised interest rates because it feared the economy was too strong and might lead to sustained inflation. Raising interest rates can take an economy from expansion to recession, but it’s far from a given, especially when we begin from a strong starting point.


Last year, the United States faced the highest inflation since the very early 1980s. Generally, high inflation is bad: goods and services cost more as our wages and savings provide less. But all inflation isn’t created equal. Inflation can be transitive or permanent. A majority of analysts believed last year’s inflation was likely transitive – and this year’s declining inflation validates that position.

Moreover, inflation can occur because of supply or demand issues. Most economists believe that demand-side inflation is less worrisome because it comes from increased economic activity. Conversely, supply-side inflation, for example when shipping lanes shut down, concerns economists more because it’s due to limited economic access or activity. In 2022, some inflation was driven by shrinking supply, like energy prices following the Ukraine war. But most inflation last year was due to a general post-COVID economic boom.


We believe politics also plays a role. As noted above, one source claimed a “100 Percent Chance of Biden Recession.” We got a chuckle out of this because there’s rarely a 100% chance of anything. Note, however, the source is explicitly partisan. That’s not necessarily a bad thing; it’s fair game for one political party to highlight what they believe to be economic weakness and attribute it to the other party. That’s just politics.

The financial media tend to cover what political actors are talking about, but often without noting the partisan spin unfortunately. This creates an incentive to consistently hype and over-hype bad economic indicators. “Things are bad and getting worse, so vote for us” may very well be a winning political strategy. But it may not be good financial advice. We urge news consumers to consider the source and what incentives that person may have, aside from educating the viewer.

Looking back at last year, we believe that rising interest rates, inflation and politics took the financial media messaging from “we are in an environment with a higher chance of recession in the near future” to “we will have a recession next year.”

Why does it matter?

When the financial media spend the better part of a year worrying about a looming recession, many investors also spend the better part of a year worrying about it. Indeed, over the past year we’ve had many conversations with clients regarding the state of the economy, whether we are in or near a recession and what they should do about it. That’s a lot of mental and emotional energy expended on something that, thus far, hasn’t happened.

In finance, when something happens and it surprises us, we tend to remember it. The tech bubble popping, the financial crisis of 2008 and Brexit are just a few examples. But when something doesn’t happen and it surprises us, it tends to go down the memory hole. We’d like to highlight “the recession that wasn’t” as a reminder that we really don’t know what’s likely to happen down the road. And worrying about what might happen doesn’t help. Planning helps! Your financial-life plan is designed to help you meet your goals, both in good times and bad. It’s not easy, but whenever possible, we recommend letting your plan do the worrying for you.

¹ Global stocks represented by the MSCI ACWI Index. All investment returns from Morningstar unless otherwise noted. Past performance is no guarantee of future results.

² US stocks represented by the S&P 500 Index.

³ US bonds represented by the Bloomberg US Aggregate Bond Index and foreign bonds represented by the Bloomberg Global Aggregate ex USD 10% Issuer Capped (Hedged) Index. Source:

⁴ “Brian Wesbury Sees No Recession Ahead,” Stories in the News, Feb. 23, 2008.

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