US headed into another recession if consumer sentiment trend continues, economists say

The U.S. economy appears to be sliding into another recession based on declining consumer sentiment – even though employment and wage growth suggest otherwise, according to two academic economists.

New research published last week by David Blanchflower of Dartmouth College and Alex Bryson of the University College London suggests that consumer expectations indexes from the Conference Board and the University of Michigan tend to predict economic downturns up to 18 months in advance in the U.S.

Every recession since the 1980s has been precipitated by at least a 10-point drop in the expectations indices, they found. Other reliable indicators include a single monthly rise of at least 0.3 percentage points in unemployment and two consecutive months of employment rate declines.

"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," Blanchflower and Bryson wrote. "However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now (Autumn 2021)."
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