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Google Trends is now a recession arbiter




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We didn’t need reports of two straight quarters of declining real gross domestic product to show that the US economy is already in, or at least close to, recession. And we don’t have to wait months for official statements from the National Bureau of Economic Research, the private research agency that tracks business cycles. Data release delays and revisions delay calls to the NBER.

All we had to do was look at the recessionary bulge in Google Search. Recession stories not only tell us what’s happening on the ground, but they also scare businesses and consumers into making a recession more likely. The steep drop clearly confirms this feedback phenomenon.

When consumers and business people suffer from a recession, they worry and talk about it. These are not arcane measures that economists ponder like job cuts or an inverted yield curve. Instead, they’re fundamental gut issues.

Other examples abound, such as gas prices skyrocketing above $5 per gallon. There is a 78% correlation between a spike in mentions of the recession on Google and higher fuel costs this year. Drivers often fill up their tanks, so they notice the price increase. Unlike a water heater that you only replace when it leaks, after 20 years of use, who remembers the cost of the old one? With the November election looming, the political implications of rising gasoline prices were evident when President Joe Biden set aside the green energy agenda and joined forces with Saudi Arabia to push for more oil.

Stock market declines always precede recessions. This reality is so well known that this year’s decline in the S&P 500 index is 82% correlated with searches on recession on Google. Once again, investors’ fears of selling stocks have created a feedback loop, driving down stock prices and reinforcing the belief that a recession is on the horizon.

Not surprisingly, rising mortgage rates, which make housing affordable and ruin cash-out refinancing, are highly correlated with recession searches on Google. The same is true of the rise in the consumer price index, which has weighed on the purchasing power of households. CPI he rose 9.1% in June from the same period last year, but hourly wage growth lagged, rising only 5.1%. As such, consumers are fearing and likely to experience recession and contraction.

I believe all of these concerns about recessions are well founded. Even if the recession were the average depth since World War II and GDP fell by 2.5%, the S&P 500 would drop 30% and the unemployment rate would rise by his 3.8 percentage points. However, it has kept inflation in check, which has fallen by an average of 1.8 percentage points in previous recessions.

The Federal Reserve’s current goal is to lower inflation, and it is willing to risk a recession to achieve that goal. After falling behind as inflation surged, the central bank is keen to restore confidence and shows it’s not going to back Wall Street this time around. No Powell puts.

Aside from the Federal Reserve’s anti-inflation and recessionary policies, excess retail inventories remained a drag on the economy, pushing the economy down in the first half of the year. Last Christmas’ glut of goods has been bolstered by shipments of goods from Asia that were stuck offshore, but are now moving to warehouses and store shelves. The order backlog decreased from 109 vessels in January to 16 vessels in May.

Caught off guard, retailers like Macy’s and Target have been forced to sell off excess inventory and reduce new orders. Their plight is exacerbated by contracting consumers as confidence, real wages and inflation-adjusted retail sales decline. The liquidator wins, but not the retailer whose customer buys a can of beer instead of a six-pack. McDonald’s Corporation says low-income customers are lowering trade-in prices, and AT&T Inc. reports that more users are delinquent on bill payments.

The housing bubble has begun to burst, and inventories of unsold new homes are soaring. Rising mortgage rates and soaring home prices have made housing out of reach for many. Home prices were 5.7 times median income in the first quarter, higher than the peak of 5 times the subprime mortgage hit in the mid-2000s. Residential construction accounts for only 3.5% of GDP, but the sector’s weakness is largely due to low down payments and high financial leverage resulting from low brokerage fees, moving costs and associated spending on new furniture and appliances. Enlarged.

The expectation that the weakness in financial markets is completely discounting the recession is that the lack of a bear market bottom exhalation point so far has forced shareholders to reverse their last stock and never buy stocks again. I swear. The market then runs out of sellers and faces only potential buyers, spurring a new bull market.

More thoughts from other Bloomberg writers:

Calling Recession Is Because Of History Very Difficult: Justin Fox Team’s Soft Landing Is Starting To Move Forward: Jared Dillian Corporate Bond Markets Didn’t Go Into Recession Note: Jonathan Levin

This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.

Gary Shilling is president of A. Gary Shilling & Co., a consulting firm. Most recently, he is the author of The Age of Delevaging: Investment Strategies for a Decade of Slow Growth and Deflation, and you may be interested in the areas he writes about.

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