October CB Consumer Confidence Remains Consistent with a Recession

• Even after today’s positive surprise consumer confidence remains low. The index was 113.8 against 108 expected and 109.3 in September (see Chart 1).

• New research shows the confidence data implies a recession is starting. Just published research by David Blanchflower, former BoE MPC member, shows that all the recessions since the 1980s have been predicted by at least 10 point drops in the Conf Board or U Mich consumer confidence indices or both. The CB index is now 15 points below its June 2021 peak and the U Mich index 17 points below March peak. The author concluded that a recession had already started. Today’s data remains consistent with his view.
• I have reached similar conclusion on a recession based on my analysis of the administration’s very large and untargeted fiscal stimulus:
  1. Against supply constraints it raised inflation and eroded real households’ income
  2. Because the scale of the fiscal stimulus is so large it needed to be normalized over a short period of time which implies unprecedented fiscal tightening and hard landing
  3. The withdrawal of government transfers is cutting into households’ income just when inflation is already lowering real incomes. See Stimulus Hangover to Push US Economy into Recession.

• Today’s consumer confidence is also consistent with my narrative because it shows no improvement in the labor market. The index of jobs plentiful minus jobs hard to find has been flat since mid-year which is also when employment growth peaked (see Chart 2).

Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)