U.S. Is in Recession If History of Consumer Sentiment Repeats
(Bloomberg) -- A decline in consumer expectations suggests the U.S. economy is in recession even though employment and wage growth indicate otherwise, according a new study co-authored by a former Bank of England policy maker.
In the research dated Thursday, David Blanchflower of Dartmouth College -- who set interest rates at the BOE during the 2008 financial crisis -- and Alex Bryson of University College London say that consumer expectations indexes from the Conference Board and University of Michigan tend to predict American downturns 18 months in advance.
The Conference Board’s gauge of expectations dropped in September to the lowest since November last year, although the University of Michigan’s gained.
“The economic situation in 2021 is exceptional, however, since unprecedented direct government intervention in the labor market through furlough-type arrangements has enabled employment rates to recover quickly from the huge downturn in 2020,” wrote Blanchflower and Bryson.
“However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now,” they added.
Every slump since the 1980s has been predicted by drops of at least 10 points in such measures, according to the authors. A single monthly rise of at least 0.3 percentage points in unemployment and two consecutive months of employment rate declines are also handy projectors.
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