Is the U.S. headed for another recession or already in one?
David “Danny” Blanchflower thinks so. The telltale sign? Plunging consumer confidence in the future. It’s called the six last recessions, the Dartmouth professor and former Bank of England policy maker warns in a new paper .
Blanchflower is well known for pinpointing the start of the U.S. recession of 2007–09 before most other forecasters and the Federal Reserve recognized the economy had fallen into that historic slump.
Read on the Bank of England website: Blanchflower’s 2008 speech in Edinburgh
The following MarketWatch interview has been lightly edited for clarity and length:
MarketWatch: You suggest the U.S. will enter a recession before the end of the year — if it hasn’t already. What is the single biggest piece of evidence to you?
Blanchflower: The best evidence for this is the new [consumer expectations] data we have published from the Conference Board for the eight biggest states: California, Florida, Illinois, Michigan, New York, Ohio, Pennsylvania and Texas.
By the spring of 2007 consumer expectations reached a peak and started falling. By December 2007 — the date called by the NBER Business Cycle Dating Committee as the start of the Great Recession — those numbers had collapsed.
In 2021 exactly the same thing has happened. Overall, these consumer expectations data, including from the University of Michigan, predict all six of the last six recessions since 1980.
It remains to be seen if a recession will follow, but [the consumer surveys] need to be taken seriously. They weren’t in 2007.
MarketWatch: You stress that “COVID-related fears and anxieties” lie behind the plunge in consumer confidence and that the pandemic could “derail the economy again.” How so?
Blanchflower: We have been trying to work out what might have turned expectations downward in the spring. Surveys by the Conference Board and Grant Thornton suggest that women in particular are fearful of returning to work and catching COVID.
In the last month the labor force participation rate of women ages 25 to 44 fell 0.7 percentage point. We also saw increased retirements. This looks to be a response to the rise of the delta variant and states not enforcing mask and vaccination mandates.
MarketWatch: Is fear of COVID one of the chief reasons there’s such a big labor shortage? People are too scared to go back to work?