Could the downturn finally manifest in 2026?
Let’s dive into a topic that has economists, journalists, and everyday citizens alike buzzing with anticipation. After over 120 episodes, I finally had the pleasure of welcoming my colleague Larry Edelman to my podcast "Say More." Larry is well-known for his insightful analysis in the Globe’s widely-read newsletter, Trendlines. This month, we recorded an engaging discussion in the Globe’s newly revamped podcast studio, focusing on the economy—our favorite subject. With decades of combined experience in business reporting, our conversation was packed with valuable insights.
You can catch our episode by visiting globe.com/saymore, or tune in on platforms like Apple, Spotify, or wherever you prefer to listen to podcasts. Don't forget to subscribe to Trendlines at bostonglobe.com/newsletters/trendlines for regular updates!
Here are six significant points to consider from our discussion:
A Mood of Cautious Pessimism
Despite economic indicators such as job statistics and inflation rates not raising immediate alarms, there remains a pervasive sense of unease among consumers. In fact, many people seem to be experiencing what we might call a "vibe-cession," where sentiment doesn’t match the numbers. Larry aptly described this feeling as being "cautiously pessimistic." While he doesn’t foresee a complete economic collapse, he recognizes that the pace of growth is slowing as we approach the new year.The Unlikelihood of a 2026 Recession
According to Larry, the prevailing consensus among economists is that a recession in 2026 is unlikely. Bloomberg’s forecast assigns a mere 30 percent chance of a downturn, which is relatively low. However, just like their counterparts in journalism, economists have occasionally misjudged future economic conditions. For instance, Shirley Leung, a fellow business journalist, recalls that the only time she accurately predicted a downturn was during the sudden halt caused by COVID-19. At the time, she anticipated that tariffs imposed by then-President Trump would lead to a recession, which ultimately did not happen. "My economic ‘spidey sense’ has been off," she reflected, highlighting the unpredictability of economic forecasting.A Divided Consumer Base
Consumer spending, which accounts for 70 percent of economic activity, remains resilient, especially during the holiday shopping season. However, as Larry pointed out, there is a noticeable divide in consumer behavior. Retailers have noted that lower and middle-income shoppers are tightening their belts, while those in higher income brackets continue to spend freely. This bifurcation presents challenges for businesses targeting different market segments.Inflation Isn’t Gone Yet
Inflation still surpasses the Federal Reserve’s target of 2 percent, and Larry expressed concern regarding the Fed's decision to cut interest rates by a quarter point in December. He believes it was a risky move, as the Fed seems more focused on supporting the job market than controlling inflation. "Inflation’s not dead yet," he stated, expressing hope that it won't escalate further into a significant issue.Federal Research Cuts Stressing Massachusetts’ Economy
The Trump administration's threat to reduce federal research funding at prestigious institutions like Harvard and MIT will likely continue to strain two vital sectors of Massachusetts' economy: education and healthcare. Larry explained how budget cuts at these universities could ripple through the community, affecting everything from dining out to home renovations, as people become more cautious with their spending.Looking Ahead: AI and Employment Trends
Artificial intelligence (AI) is poised to have a significant impact on both the economy and the stock market. As companies increasingly adopt AI technologies, valuations in this sector are soaring, contributing to near-record highs in the market. However, this trend raises concerns about employment, as employers may hesitate to hire until they fully understand the implications of AI integration. "In 2026, we’ll discover if the job market is merely pausing for breath or if we are heading toward a more severe downturn," Larry warned.
This fascinating dialogue included contributions from Anna Kusmer and Kara Mihm from the Globe staff. If you have thoughts about the potential economic landscape ahead or disagree with any of the insights shared, feel free to join the conversation in the comments! What are your predictions for the economy in 2026?
