A recent study by economists at the Federal Reserve Bank of San Francisco indicates that consumer sentiment, along with the tone of news coverage, can predict recessions similarly to traditional economic data. Released on July 17, the working paper titled "Do Vibes Predict Recessions?" suggests that these "soft" data can sometimes provide insights faster than conventional statistics like jobs and output.
The researchers, Nicolas Petrosky-Nadeau, Yeji Sung, and Daniel J. Wilson, found that a sentiment-based model outperformed a hard data model in accuracy when looking one month ahead. This model was also quicker to identify rising recession risks, though it resulted in more false alarms. The study emphasizes that while sentiment data is valuable, it should complement rather than replace hard economic indicators.
The analysis utilized various sentiment inputs, including consumer surveys and economic-policy uncertainty indexes, covering data from August 1999 to May 2026, which includes three recessions. The findings provide a nuanced understanding for households and businesses in McKinney, Texas, as they navigate economic uncertainties. However, the authors caution that the paper reflects their views and does not represent the official stance of the Federal Reserve.
