Google Trends is now the arbiter of recession

There is currently a high correlation between the decline in consumer confidence and the increasing occurrence of the word “recession” in internet searches.

We don’t need to report two consecutive quarters of falling real gross domestic product — the unofficial definition of a recession — to say we America economy have experienced, or at least are close to, a business downturn. And we certainly don’t have to wait months for an official statement from the National Bureau of Economic Research, the private research body that documents business cycles. Delayed data release and NBER call delay revisions.

All we need to do is look at the occurrence of a “recession” in the Google search. Talking about a recession not only tells you what’s happening on the ground, but it also increases the likelihood of a recession by scaring businesses and consumers. As revealed by the Board of Directors and the University of Michigan surveys, is clear confirmation of this feedback phenomenon.

When consumers and entrepreneurs suffer from adverse economic conditions, they worry and talk about a recession. These are not esoteric measures that economists ponder like falling job openings and inverted yield curves. Instead, they are basic intestinal problems. And there is now a high correlation between the decline in consumer confidence and the increasing occurrence of “recessions” on Google.

Other examples abound, such as the price of gas skyrocketing to more than $5 per gallon. There is a 78% correlation between mentioning “recession” on Google and rising fuel costs this year. Motorists notice an increase in prices because they frequently refill the tank. It’s not like a country the heater is only replaced when it leaks and after 20 years of use, Who can remember the cost of the old one? With the November election coming up, the political impact of rising gasoline costs is evident when the President Joe Biden put your green energy agenda aside and get to work Saudi Arabia to ask for more crude oil.

Falling stock prices always precede recessions, and it’s well known that the drop in the S&P 500 Index this year is 82% correlated with Google searches for “recession.” Here again, there is a feedback loop as anxious investors dump their stocks, thereby driving down stock prices and increasing confidence that a recession is near.

Unsurprisingly, rising mortgage rates, which make homes cheaper and kill cash refinances, are highly correlated with Google searches for “recession.” The same is true of the soaring consumer price index, which affects the purchasing power of households. The CPI rose 9.1% in June from a year earlier while hourly earnings growth lagged behind, rising only 5.1%. So consumers worry about a recession and retreat, thereby increasing the likelihood of one happening.

I believe all these worries about a recession are well-founded. Even if the recession were moderate after World War II and reduced GDP by 2.5%, it would cut the S&P 500 index by 30% while raising the unemployment rate by 3.8 percentage points. But it will curb inflation, which has averaged 1.8 percentage points lower than before business Depression.

A lower inflation rate is the Federal Reserve’s current goal, and it’s willing to take on recession risks to achieve its goal. After getting behind the curve as inflation soars, the central bank is keen to restore its credibility and has indicated it has no intention of backing Wall Street this time. There is no Powell to go after Greenspan, Bernanke and Yellen.

Besides the Fed’s anti-inflationary but recessionary policy, excess retail inventories continued to be an economic drag, causing the economy to shrink in the first half of this year. Excess cargo from last Christmas is being boosted by all those freight trains from Asia that have run aground off the coast but are now being moved to warehouses and store shelves. The backlog at the ports of Los Angeles and Long Beach fell from 109 in January to 16 in May.

Retailers caught off guard like Macy’s Inc. and Target Corp. forced to sell excess inventory and cut new orders. Their predicament is exacerbated as consumers take a break as confidence, real wages, and inflation-adjusted retail sales decline. The liquidators are winning, but not the retailers whose customers buy one can of beer instead of six. McDonald’s Corp. said low-income customers are trading down, and AT&T Inc. reported that more users pay.

Unsold new home inventories are soaring as the housing bubble begins to burst. Higher mortgage rates and skyrocketing home prices have left many inaccessible. Home prices in the first quarter were 5.7 times median income, five times higher than their peak during the subprime mortgage boom of the mid-2000s. Housing construction accounted for just 3.5% of GDP. but weakness in the sector is compounded by high financial leverage due to low payouts and expenditures related to brokerage fees, moving costs and new furniture and equipment.

Hopes that the financial market weakness is easing the recession completely has been dashed as there is so far no trigger point at the bottom of the bear market in which equity holders buy back shares. their last shares and vowed never to buy another stock. After that, the market ran out of sellers and faced only potential buyers, fueling a new bull market.

Gary Shilling is the president of A. Gary Shilling & Co., a consulting firm. Most recently, he authored “Age of Delegates: Investment Strategies for a Decade of Slow Growth and Deflation,” and he may have stakes in the sectors he writes about.

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