MARY LOUISE KELLY, HOST:
A quick spin around social media reveals people are seeing recession indicators everywhere. When the restaurant Five Guys announced its first ever combo meal...
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THESIMPLYSIMONE: Child, it's getting so bad out here.
KELLY: This is TikTok user TheSimplySimone.
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THESIMPLYSIMONE: Little Burger, little fry and I believe a small drink. Baby, you know it's bad when Five Guys is actually rolling out a combo meal.
KELLY: The internet has flagged everything from job recruiter texts to hairstyle changes as recession indicators. Kenny Malone and Keith Romer from the Planet Money podcast checked in with economists to see if all this informal recession watching is lining up with the official data.
KENNY MALONE, BYLINE: Are you familiar with the hip-hop artist Flavor Flav?
CLAUDIA SAHM: I've heard the name.
MALONE: Famously wore clocks around his neck.
SAHM: Oh, OK.
KEITH ROMER, BYLINE: This is economist Claudia Sahm.
MALONE: Some astute viewer has noticed in a recent video his clock seems to have shrunk - recession indicator. Thoughts?
(LAUGHTER)
SAHM: Sounds like a good one.
ROMER: There is a well-documented list of alternative recession indicators.
MALONE: One theory says men's underwear sales decrease leading into a recession.
ROMER: Another theory says lipstick sales increase because it's a relatively affordable luxury item.
MALONE: But we do have more robust instruments, like a recession indicator Claudia Sahm developed in 2019.
SAHM: I put a really high priority on, it's simple, could be put into policy, easily explained and was highly reliable.
ROMER: The Sahm rule is that when unemployment rises by a certain amount, you can be almost certain the U.S. is already in a recession.
MALONE: So currently, the Sahm rule says what about a recession?
SAHM: So currently, the Sahm rule says we are not in a recession.
ROMER: But that's about right now. For the future, we turn to Professor Menzie Chinn, who spent years studying our ability to forecast recessions.
MENZIE CHINN: I love talking about this. I talk about it with my students endlessly, to their sadness, I'm sure.
MALONE: Well, let me ask you this. Have you noticed that maybe your students are perhaps a bit more interested in talking about recession indicators?
CHINN: Absolutely.
MALONE: I would say, possible recession indicator.
CHINN: Yeah (Laughter). Yes, I think you're right, actually.
MALONE: Chinn teaches at the University of Wisconsin-Madison. And the specific indicator he's focused on?
CHINN: The yield curve, or more specifically, the term spread.
MALONE: Meaning the relationship between interest rates on short-term and long-term government treasuries.
ROMER: In normal times, investors demand higher interest for lending money for more time. But if that ever flips...
CHINN: It signals a recession.
MALONE: Yeah.
CHINN: And so it's reflecting the fact that people are expecting a slowdown.
ROMER: And right now, Menzie Chinn's yield spread model says there is a roughly 22% chance of a recession in the next 12 months.
CHINN: Yes.
MALONE: OK. So is that...
CHINN: OK.
MALONE: That feels high. Is that high?
CHINN: Well, it's still below, like, a 50% threshold I would use.
MALONE: You know, the truth is, the hardest type of recession to predict is one that comes from an out-of-the-blue shock. And the shock economists have been worrying about is a sudden global trade war.
ROMER: So maybe social media is the right place to look after all, just not TikTok or Instagram but Truth Social and the account of one real Donald Trump, where the president may post about big new tariffs or big new trade deals.
Keith Romer.
MALONE: Kenny Malone, NPR News.
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