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Economists: Troubling Consumer Sentiment Data Point To Looming Recession

   DailyWire.com
A section of empty shelves is seen during special shopping hours only open to seniors and the disabled at Northgate Gonzalez Market, a Hispanic specialty supermarket, on March 19, 2020 in Los Angeles, California.
Mario Tama/Getty Images

A pair of economists argue that recent drops in consumer sentiment point to a looming recession.

On October 7, David Blanchflower of Dartmouth College and Alex Bryson of University College London released a paper entitled “The Economics of Walking About and Predicting US Downturns.” Recalling the failure of analysts to predict the 2008 recession, the economists argued that the “wisdom of crowds” held by non-expert economic actors is often superior to the knowledge of “experts.”

Accordingly, rapid downturns in consumer sentiment surveys — especially those from the Conference Board and the University of Michigan — have successfully predicted recessions for the past four decades.

The economists write:

We show consumer expectations indices from both The Conference Board and the University of Michigan predict economic downturns up to 18 months in advance in the United States, both at national and at state-level. All the recessions since the 1980s have been predicted by at least 10 and sometimes many more point drops in these indices. 

There are clear downward movements in consumer expectations in the last six months which, according to our rules of thumb regarding 10-point declines, would suggest the economy in the United States is entering recession now (Autumn 2021) — even though employment and wage growth figures suggest otherwise.

Although the unemployment rate has gradually fallen through 2021, there are other worrying trends in the United States economy — including rampant shortages, rising inflation, and a stagnant labor force participation rate. A recent debt ceiling debate in Congress — which ended with Senate Minority Leader Mitch McConnell (R-KY) offering Democrats a short-term deal to prevent a default on national debt — also shook the stock market in recent weeks.

As Blanchflower and Bryson observe, the last recession was met with an unprecedented amount of federal stimulus spending. Although the National Bureau of Economic Research concluded that the 2020 recession was the shortest in American history — officially lasting only two months — the federal government responded more aggressively than in any previous downturn. 

In March 2020, President Trump signed the $2.2 trillion CARES Act; in December 2020, he signed another $900 billion aid package. In March 2021, President Biden approved the $1.9 trillion American Rescue Plan.

If the trillions in federal spending were disbursed among America’s 143.3 million taxpayers, each would have received roughly $41,000. If the funds were instead divided among every member of the population, every American would have received $18,000.

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The Daily Wire   >  Read   >  Economists: Troubling Consumer Sentiment Data Point To Looming Recession