Title of final Convention Board publish on the index reads: “Expectations Index Declined for the Second Straight Month, Sinking Again Beneath Recession Threshold”. Right here’s an image of this index, in contrast towards the College of Michigan Shopper Sentiment index.
Determine 1: College of Michigan Shopper Sentiment index (blue), and Convention Board Shopper Confidence index (tan). NBER outlined peak-to-trough recession dates shaded grey. Supply: U.Michigan by way of FRED, Confidence Board by way of TradingEconomics, and NBER.
A regression utilizing the Michigan index doesn’t predict NBER outlined recession dates effectively, so I depend on the Convention Board measure. The six month change, lagged one month, has a pseudo-R2 of 0.31 over the 1986-2023 interval (assuming no recession has occurred as of 2023M10). The prediction signifies no recession as of October 2023.
Determine 2: Recession chances from probit regression of NBER recession dates on one month lagged 6 month change in Shopper Confidence index. NBER outlined peak-to-trough recession dates shaded grey. Supply: NBER, and creator’s calculations.
I’m exploiting a correlation between an index of sentiment and recession dates, nothing extra, nothing much less right here. A low confidence index shouldn’t be the identical as a recession (a recession is a broad sustained lower in financial exercise, which could lead to a discount in sentiment, or be presaged by a discount in sentiment, however shouldn’t be in itself the identical factor).
