A Dartmouth professor warns not only has the United States slipped into a recession that is likely as bad as the 2008 financial meltdown, but that it is getting worse. David Blanchflower of Dartmouth, along with Alex Bryson, of University College London, “says that every slump since the 1980s has been foreshadowed by 10-point drops in consumer indices from the Conference Board and the University of Michigan” reports the Daily Mail.
The two professors authored a research paper released October 7 titled, “The Economics of Walking About and Predicting US Downturns” in which they state the dire prediction. “It seems to us that there is every likelihood that the US is entered recession at the end of 2021.”
In the paper’s ‘Abstract’ it states “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.”
“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.”
In the introduction, the paper explains that “following the collective failure to predict the Great Recession of 2008 economists have redoubled their efforts to predict economic downturns.” This paper seeks “to see whether it is possible to predict turning points in the United States economy since the late 1970s using qualitative data for the United States from The Conference Board and the University of Michigan on consumer expectations.”
The research paper writes:
We identify four criteria to predict these recessions:
1. Two out of three successive quarters of quarterly GDP growth are negative.
2. There are two successive months of employment declines in the Current Population Survey (CPS) household-level data.
3. The unemployment rate rises 0.3 percentage points in a single month.
4. Either or both the two expectations measures we examine from The Conference Board and the University of Michigan fall by 10 points or more.
So, what is going on? The answer appears to lie in the exceptional nature of the COVID-induced shock to the economy. It has been both an economic shock and a health shock, and one with the potential to derail the economy again over the coming months. It seems likely that, in spite improvements in traditional labor market indicators, declining consumer expectations about the future of the economy are linked to COVID-related fears and anxieties. This is borne out by the survey by The Conference Board discussed above indicating a recent rise in the percent of workers – and especially women – worried about returning to the workplace for fear of contracting COVID- 19, a substantial increase from June 2021 when only 24% expressed this concern…
…We suspect that fears linked to COVID will continue to affect the real economy and lie behind consumer expectations about an imminent downturn in the economic situation. This is a bold call of course, and not consistent with consensus and only time will tell if we are right. However, equivalent falls in these data in 2007 were an early indicator of recession, missed at the time by policymakers and economists. There is a possibility of course, that these data are giving a false steer. However, missing the declines in these variables in 2007, as most policymakers and economists did, proved fatal. It is our hope such mistakes will not be repeated this time around. They missed it last time, hopefully, they won’t miss it this time. These qualitative data trends need to be taken seriously.
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