Claudia Song
Appearances
Planet Money
How economists (and TikTok) know if a recession is coming
This is Planet Money from NPR.
Planet Money
How economists (and TikTok) know if a recession is coming
We want recession pop. Yeah, we wanted it during the 08-09 Great Recession. Lady Gaga had two number one songs back then. Datapoint, just saying. I would have to check it, though. Yeah, possibly. I guess Justyna did not check on that.
Planet Money
How economists (and TikTok) know if a recession is coming
This is a pretty famous economic indicator that is put out by a 100-year-old nonprofit called the Conference Board. And LEI is an index made up of 10 different data sets from all over the economy.
Planet Money
How economists (and TikTok) know if a recession is coming
Crammed in there, yes. And it is also... looking at the yield curve and claims for unemployment insurance. So, you know, some of the same general ingredients that are in the two indicators we've already talked about here.
Planet Money
How economists (and TikTok) know if a recession is coming
Okay. And so let me just ask you, what does LEI tell us about the possibility of a recession in the near future?
Planet Money
How economists (and TikTok) know if a recession is coming
The 3D rule, meaning looking at this graph with sort of three different lenses, usefully all starting with the letter D. So we'll look at the duration, at the depth, and the diffusion of the index.
Planet Money
How economists (and TikTok) know if a recession is coming
Diffusion is looking at how many of the 10 LEI components are involved with the drop. You know, is this drop contained to, say, housing and labor or are the problems diffused across the economy?
Planet Money
How economists (and TikTok) know if a recession is coming
It's like the different systems in the body. You're seeing, are they all shutting down? Is it localized, et cetera?
Planet Money
How economists (and TikTok) know if a recession is coming
And when we talked to Justyna, the 3Ds, the LEI, had come down a little in March, a little. The 3Ds were not freaking people out about a recession.
Planet Money
How economists (and TikTok) know if a recession is coming
Are we talking moving markets level? Do you have to go into lockdown before it releases?
Planet Money
How economists (and TikTok) know if a recession is coming
Look, if lots of people do suddenly want to talk or even joke about recession indicators, we are here for that.
Planet Money
How economists (and TikTok) know if a recession is coming
Do you want to share it with our audience, Planet Money? We could all...
Planet Money
How economists (and TikTok) know if a recession is coming
Yeah, if you've been the TikToking and the Snapchatting and the Instagramming, blue-skying. That's what they say. They say all those as verbs. Perhaps you have noticed a trend, friends.
Planet Money
How economists (and TikTok) know if a recession is coming
And these days, the shock that economists have been worried might happen to the economy is a full-on global trade war, which many economists say would increase the odds of a recession considerably. So to some degree, the question really boils down to, are we or are we not doing gigantic broad tariffs with all of the countries?
Planet Money
How economists (and TikTok) know if a recession is coming
Yeah, fair, but I am not not going to keep following TikTok recession indicators from Elisha Berman.
Planet Money
How economists (and TikTok) know if a recession is coming
But for real, men, buy new underwear.
Planet Money
How economists (and TikTok) know if a recession is coming
Yes, you know, the stuff you need to know to fully unspool the macroeconomic implications of the babysitter bug.
Planet Money
How economists (and TikTok) know if a recession is coming
And also, for that matter, there's no official definition of recession. Generally speaking, you'll hear that a recession is when the U.S. economy contracts for two straight quarters. But the reality is an official group of economists get to make the recession call.
Planet Money
How economists (and TikTok) know if a recession is coming
I always think that it's a business cycle committee that is like dating each other, but that's not what it is.
Planet Money
How economists (and TikTok) know if a recession is coming
Thoughtful, thorough, the... They are months behind the news to some degree, sort of the exact opposite of, you know, real social media influencers.
Planet Money
How economists (and TikTok) know if a recession is coming
But also, are you familiar with the hip-hop artist Flava Flav?
Planet Money
How economists (and TikTok) know if a recession is coming
This is economist Claudia Song. Famously wore clocks around his neck.
Planet Money
How economists (and TikTok) know if a recession is coming
Some astute viewer has noticed in a recent video his clock seems to have shrunk. Recession indicator. Thoughts?
Planet Money
How economists (and TikTok) know if a recession is coming
The idea here being that men will start pinching pennies by maybe not buying new skivvies leading up to a recession. So underwear sales, a leading indicator of recessions. Also, there is something called the Lipstick Index.
Planet Money
How economists (and TikTok) know if a recession is coming
The idea here is that lipstick sales will actually go up as economic times get worse because people will trade in expensive luxury items like fancy handbags or dresses for cheaper luxury items like a tube of lipstick.
Planet Money
How economists (and TikTok) know if a recession is coming
Allow us a quick tour through TikTok to demonstrate. Example one, when the restaurant Five Guys, you know, burgers and fries, announced it was testing out a combo meal, a value meal, really, for the first time ever.
Planet Money
How economists (and TikTok) know if a recession is coming
So Claudia doesn't discount the lipstick index specifically, but these alternative measures are perhaps not the most robust recession detecting instruments at our disposal.
Planet Money
How economists (and TikTok) know if a recession is coming
This dates back to 2019. Claudia was working at the Fed back then and was asked to join a group tasked with writing a book of policy recommendations.
Planet Money
How economists (and TikTok) know if a recession is coming
And so Claudia's job was simply to look for patterns in the data that could, in real time, say basically like, oh, oh wait, okay, if this particular whatever thing happens in the data, then we are almost certainly in a recession and that should be a sign to get people the help that they need.
Planet Money
How economists (and TikTok) know if a recession is coming
Now, the technical rule specifications are when the average of the three month rolling unemployment rate goes up by at least point five percent compared to the 12 month low. But also, look, it is completely OK to just remember when unemployment goes up by a certain amount. That's fine.
Planet Money
How economists (and TikTok) know if a recession is coming
And the SOM rule works for a couple of reasons. Number one, it identifies trends and not just the jittery ups and downs of month-to-month job numbers because it's using an average. So if the SOM rule triggers, you can be sure that unemployment is really going up. It's not a fluke.
Planet Money
How economists (and TikTok) know if a recession is coming
OK, so then what does the SOM rule say about whether there is a recession right now?
Planet Money
How economists (and TikTok) know if a recession is coming
That's right. It is okay to upsize your necklace clock. Men, it is okay to buy new underwear. Men, you can buy new underwear. Please do buy new underwear. Because in this moment, we are not in a recession according to the Psalm rule. What is the best part and worst part of having a recession indicator named after you?
Planet Money
How economists (and TikTok) know if a recession is coming
No, no. For that, we turn to Professor Menzi Chin. He teaches economics at the University of Wisconsin-Madison and has spent years studying our collective ability to predict recessions.
Planet Money
How economists (and TikTok) know if a recession is coming
Now, Five Guys did tell us little does not mean kid's size, but like, whatever, you get the idea.
Planet Money
How economists (and TikTok) know if a recession is coming
Well, let me ask you this. Have you noticed that maybe your students are perhaps a bit more interested in talking about recession indicators? Absolutely. I would say possible recession indicator.
Planet Money
How economists (and TikTok) know if a recession is coming
And the predictor of recessions Menzies wound up studying?
Planet Money
How economists (and TikTok) know if a recession is coming
So the yield curve is simply a graph. Showing all of the different interest rates that you would get for all of the different kinds, different durations of U.S.
Planet Money
How economists (and TikTok) know if a recession is coming
But I could also buy a much shorter treasury, a three-month treasury, for example. I get less interest on that right now. My money is locked up for less time. There's less risk. This makes sense.
Planet Money
How economists (and TikTok) know if a recession is coming
However, there are strange moments when the shape of that relationship, when the literal shape of the yield curve graph flips completely upside down. And in that situation, investors are worried about the near term and about the economy deteriorating.
Planet Money
How economists (and TikTok) know if a recession is coming
Is it that the wisdom of the crowds is smart and picks up on this? Is that basically what's happening here?
Planet Money
How economists (and TikTok) know if a recession is coming
Like, over the last 50 years, whenever the yield curve inverted, a recession has followed within 18 months every single time. Except... Yeah, well, there's the recent exception a few years post-COVID where it did invert, but there was no recession. But other than that, other than the last one, it has worked every single time. And to be fair, it has never missed a recession.
Planet Money
How economists (and TikTok) know if a recession is coming
And what that means is, well, this is where we get into probabilities. Very fun. Menzies has a model that compares basically all of those interest rates, the pairs of term spreads, and then it's able to spit out the odds that we will have a recession in the next year.
Planet Money
How economists (and TikTok) know if a recession is coming
Yes. Okay. So that feels high. Is that high?
Planet Money
How economists (and TikTok) know if a recession is coming
You know, the yield curve works as a predictor because the bond market is simply trillions of dollars of bets on the future of the U.S. economy. And historically, the throng of humans placing that flood of bets has been good at picking up on vibes of trouble ahead.
Planet Money
How economists (and TikTok) know if a recession is coming
Yes, and after the break, we have one final recession indicator that attempts to smash, like, all of the other indicators together. Well, I guess I should say maybe not all of the other indicators.
Planet Money
How economists (and TikTok) know if a recession is coming
Oh, correct. TikTok user Elisha Berman. I did not understand and Googled every part of this. So social media influencer Alex Earle, typically very put together hair situation, went to California music festival Coachella wearing very messy hair situation called babysitter buns.
Planet Money
How economists (and TikTok) know if a recession is coming
Yeah, but that is after the break.
Planet Money
How economists (and TikTok) know if a recession is coming
And we're back. And genuinely, I really could listen to Alicia Berman's breakdown of the return of the babysitter bun all day.
Planet Money
How economists (and TikTok) know if a recession is coming
And if messy buns not portentous omen enough, allow us yet one final triangulating recession data point, as discussed online, which I then felt compelled to discuss with our third and final economist, Justyna Zabinska-Lamonica. Now, Justyna, let me ask you this. Lady Gaga is yet again at the top of the Billboard charts. And so someone would flag that and say, this is a recession indicator.