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Recession Looming? Decline in Consumer Sentiment Is Strong Indicator of Economic Downturn

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Although employment and wage growth are on the rise, the U.S. economy could see an economic recession by the end of 2021, according to economists David Blanchflower of Dartmouth College and Alex Bryson of the University College London.

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Consumer expectations indices from the Conference Board and the University of Michigan show downturns in consumer economic sentiment, which tend to reliably predict economic downturns up to 18 months in advance, Fox Business reported. Since the 1980s, every recession has been preceded by a 10-point drop in expectations indices.

In September, the Conference Board showed the third consecutive decline in consumer expectations in as many months. Expectations are now the lowest since November 2020. However, the University of Michigan gauge rose in September. Blanchflower and Bryson noted that the Michigan data likely showed its peak in June 2021 and then fell in August, while the Conference Board data peaked in March 2021 and then fell through September. The economists pointed to “clear downward movements in consumer expectations” over the past six months as indication of an oncoming recession, Fox Business reported.

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Typically, drops in consumer sentiment would be accompanied by rising unemployment rates and falling employment rates. However, government stimulus programs and the unprecedented events of the past year may be propping up the labor market. Without these actions, a recession may have been inevitable.

The economists pointed to supply chain issues heading to the start of the holiday season, continuing fights over the debt ceiling, and the coronavirus Delta variant as factors that could drive the U.S. into a recession.

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In spite of consumer sentiment, Wall Street remains bullish on the economy, IBTimes.com reported.

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Last updated: October 12, 2021