Is The U.S. Already In A Recession? GDP is artificially high, the real GDP is one year behind what economic data suggests

xizhimen · Oct 21, 2021

Is The U.S. Already In A Recession? GDP is artificially high, the real GDP is one year behind what economic data suggests

Zack Friedman

Oct 21, 2021,08:30am EDT|

The U.S. is already in a recession that could be as bad as 2008, according to new research.

Economy

David Blanchflower, a Dartmouth professor and former member of the Bank of England Monetary Policy Committee, and Alex Bryson, a University College London professor, claim in new research that the U.S. already entered recession in late 2021. This is contrary to recent economic headlines that promote a soaring stock market and low unemployment data. Based on an analysis of key consumer data, the professors argue that the economic downturn could rival the 2008 financial recession. Here’s why:

Economic crash: reasons why

The professor write that there are several reasons why an economic crash is imminent:

Consumer Data is Ominous

Every recession since the 1980s has been precipitated by a 10-point decrease in consumer confidence indices from the University of Michigan and the Conference Board. In 2021, the Conference Board measured a 25.3-point drop in consumer confidence, while the University of Michigan measured a decline of 18.4 points. In comparison, in advance of the 2008 financial crisis, the Conference Board recorded a 19-point decline and the University of Michigan recorded a 21-point decrease. Blanchflower and Bryson say consumer confidence indices are important because they ask everyday Americans for the views on the economy and expectations about income and employment.

GDP is artificially high

The authors argue that Gross Domestic Product (GDP) in the U.S. is artificially high. They say the real GDP is one year behind what economic data suggests.

Unemployment is artificially low

Record unemployment rates — and a quick recovery from the Covid-19 pandemic — may not tell the entire story. The authors argue that unprecedented government support in terms of unemployment insurance and other economic stimulus has propped up the jobs market, according to the authors.

Economists previously missed these indicators

The authors note that while the data supporting their argument could be wrong, economists dismissed similar indicators in 2007 before the Great Recession.

Other macroeconomic issues

Unemployment data, GDP growth and consumer confidence only tell part of the story. Other worries include increased inflation, high leverage in the Chinese economy and supply chain roadblocks, among others.

Recession: final thoughts

The stock market hit an all-time high. Unemployment is low. What could go wrong? The authors argue that consumer data shouldn’t be ignored. The magnitude of drops in consumer confidence in 2021 in eight states — California, Florida, Illinois, Michigan, New York, Ohio, Pennsylvania and Texas — is comparable to the declines recorded in 2007. Yes, the twin features of an economic and health shock from the Covid-19 pandemic has impacted this data. However, as the authors note, consumer concerns about Covid-19 and perceptions about the economy and unemployment can have a material impact on the real economy, which could impact a recession.