Is the US already in recession?

Given America's pandemic recession is only judged to have ended in April 2020, discussion of a double dip so soon seems premature.

Yet, David Blanchflower of Dartmouth College and Alex Bryson of University College London have kicked off such a debate.

In a new research paper released last week, they used history to wonder if a recent decline in consumer expectations suggests the world's biggest economy is already in recession again.

Every slump since the 1980s has been foreshadowed 18 months ahead of time by drops of at least 10 points in gauges of consumer expectations from the Conference Board and University of Michigan, according to the authors.

The Conference Board's index dropped in September to the lowest since November last year, although the University of Michigan's gained.

"Downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now," wrote Blanchflower and Bryson.

The good news is that other indicators are more upbeat. Even in Friday's disappointing jobs report, the unemployment rate dropped top 4.8%. A single monthly rise of at least 0.3 percentage points in that measure is also a handy projector of recessions, the economists found. 

And even while Wall Street banks are cutting their forecasts for economic growth they still see robust expansion. Goldman Sachs, for example, told clients on Sunday that they now project the US economy growing 5.6% this year and 4% next, even though both rates are slower than previously anticipated.

But there's no denying risks are mounting. The delta variant has shown the pandemic will be here for a while, supply chains are squeezed and ports congested, food and fuel prices are surging, the labor market still has problems and fiscal and monetary policy makers may be pulling back stimulus soon. The debt limit fight has only been delayed. 

For those quick to scoff at the risk of a slump, let's also remember economists are pretty terrible at forecasting such turns. A 2018 study discovered that of 153 recessions in 63 countries from 1992 to 2014, only five were predicted by a consensus of private-sector economists in April of the preceding year.

Time to cross fingers and hope history doesn't repeat. 

The Week Ahead

US consumer inflation and prices paid to producers probably advanced at healthy paces in September, suggesting cost pressures continue to percolate. 

The widely followed consumer price index is projected to match August's 0.3% monthly increase and the 5.3% year-over-year gain, according to the median of economists surveyed by Bloomberg.

The government's gauge of producer prices is seen accelerating to 8.7% on an annual basis. 

Also this week, the International Monetary Fund meetings begin, the Federal Reserve releases minutes of its last meeting and Chile's central bank may raise interest rates. 

The inflation theme is certainly occupying the minds of investors.

After years of declines, America's middle class now holds a smaller share of US wealth than the top 1%. The middle 60% of US households by income -- a measure economists often use as a definition of the middle class -- saw their combined assets drop to 26.6% of national wealth as of June, the lowest in Federal Reserve data going back three decades. For the first time, the super rich had a bigger share, at 27%.

The data offer a window into the slow-motion erosion in the financial security of mid-tier earners that has fueled voters' discontent in recent years. That continued through the Covid-19 pandemic, despite trillions of dollars in government relief.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.