Citing the recent data of troubling consumer sentiment, a pair of economists pointed to a model of a looming recession in the United States economy.
In a paper earlier this month, Professor David Blanchflower of Dartmouth College and Professor Alex Bryson of University College London predicted an upcoming downturn in the United States, which they said is happening this autumn.
The economists claimed that economic shocks are notoriously difficult to predict, but recent research suggests qualitative metrics about economic actors’ expectations could help predict the downturns.
The two argued that the 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.
“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,” they wrote.
“All the recessions since the 1980s have been predicted by at least 10 and sometimes many more point drops in these expectations indices,” they wrote.
The economists said that the situation in 2021 is exceptional since unprecedented direct government intervention in the labor market through furlough-type arrangements has enabled employment rates to recover quickly from the massive downturn in 2020.
“However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now (Autumn 2021) even though employment and wage growth figures suggest otherwise,” he continued.
In their paper, entitled “The Economics of Walking About and Predicting U.S. Downturns,” Blanchflower and Bryson said they identified four criteria to predict these recessions:
First, two out of three successive quarters of quarterly GDP growth are negative.
Second, there are two successive months of employment declines in the Current Population Survey (CPS) household-level data.
Third, the unemployment rate rises 0.3 percentage points in a single month.
And either or both the two expectations measures they examine from The Conference Board and the University of Michigan fall by 10 points or more.
According to Daily Wire, their predictions come as the U.S. economy suffers supply chain problems, rising inflation, stagnant labor force participation, and debt ceiling standoff.