Main Finding:
Consumer and business expectations about future employment levels accurately predict economic downturns. This predictive power was evident before the Great Recession, the COVID-19 recession, and the economic uncertainty following Russia's invasion of Ukraine.
Key Points:
Survey data on consumer fear of unemployment and firms' staffing expectations outperformed many professional forecasts.
These expectations reflect on-the-ground knowledge of economic transactions, giving consumers and businesses valuable, timely insights.
From 1985 to 2022, fear of unemployment rose across Europe ahead of major economic downturns.
Had central banks incorporated this data into their models, they might have predicted the Great Recession earlier.
Implications:
Economic policymakers should pay close attention to consumer and business sentiment surveys for accurate, high-frequency indicators of potential downturns.
This data can provide early warning signs, allowing for more timely policy interventions.
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