Help! Americans think the economy has fallen and it can't get up
The internals of the Conference Board’s monthly survey of confidence have tumbled to levels consistent with a US recession.
Americans think economic conditions are getting worse, and don’t expect them to get better any time soon.
Between low gas prices, relatively low unemployment, and high stock prices, consumers have a lot of reasons to be feeling better about how things are going. And yet, they’re not.
The Conference Board’s monthly survey of US consumers showed that Americans’ assessment of current business and labor market conditions tumbled, while their expectations for what conditions will be in six months’ time registered a more modest decline.
“Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further,” said Dana M. Peterson, chief economist at The Conference Board. “Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income.”
According to the press release, a reading of the expectations index “below the threshold of 80 usually signals a recession ahead.”
We’re still above that now, and that metric has often been below 80 for much of the past two and a half years without the US economy entering into a downturn.
But another good recession indicator comes from looking at the difference between how Americans say the economy is doing now, and how it will be doing in the future. In the past, when consumers have said conditions are getting worse, and don’t expect them to get better, they’ve largely been right.
We have monthly data going back to the middle of 1977 on current conditions and expectations. The outright level of this differential – at 42.6 – isn’t necessarily cause for concern. That’s about as good as it ever was during the expansion in the 2000s.
But the rate of change is worrisome. Current conditions have fallen by over 30 points relative to expectations over the past six months. That’s a very abrupt drop that has historically been associated with a recession, with the one exception being the onset of the war in Iraq.
Glass half empty view? The end is near.
Glass half full view? Call this yet another recession indicator that’s been broken by a very atypical set of economic circumstances that have prevailed since the pandemic.
