OPINION: Several indicators seem to indicate that the United States is going to experience a recession.
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By Sébastien Thiboumery.
The Conference Board predicts US GDP growth of 5% in the fourth quarter of 2021 and 3.5% in 2022. What if these forecasts are wrong and the United States has already entered a recession?
The United States on the verge of entering a recession?
This is the opinion of David Blanchflower, professor of economics (and former member of the Bank of England’s monetary policy committee from 2006 to 2009) who published a research paper on forecasting economic reversals. The study shows that since 1978 all recessions have started with a drop of more than ten points in the confidence index of the University of Michigan and the Conference Board (the recession occurring within 6 to 18 months). ).
However, the Confidence Index of the Conference Board lost 25.3 points in 2021 and that of Michigan 18.4 points. As a reminder, the drops were 21 points for the two indices in 2007 (before the 2008 financial crisis).
What do these confidence indices consist of? To take the pulse of the economy in real time by polling Americans on their vision of the future in terms of jobs, income, the state of the economy. Blanchflower thus relies on the “wisdom of the crowds” (wisdom of crowds) who, according to him, have a more accurate view of the real health of the economy than the experts.
The factors of the crisis
Two factors can explain the drop in indices:
- Inflation which accelerated to 6.2% in October which rises faster than wages, eroding the purchasing power of consumers.
- The increase in covid cases fueling employee anxiety and contributing to labor shortages.
Of course, Blanchflower can be wrong in his analysis, but the appearance of another indicator gives credence to his thesis: the inversion of the yield curve which is a leading indicator of recession. When the yield of short-term bonds is higher than that of long-term bonds, then indicators perceive the short term as riskier. Indeed, the curve measuring the difference between the yield at 30 years and that at 20 years is plunging, as in 2000 and 2008 before the stock market crashes.
source : Myrmikan Research
US equity markets are at an all-time high. If Blanchflower’s economic forecast is correct, the landing could be hard.
