A study from the Federal Reserve Bank of San Francisco indicates that consumer sentiment and the tone of news can forecast recessions similarly to traditional economic data. Released on July 17, the working paper, titled "Do Vibes Predict Recessions?" was authored by economists Nicolas Petrosky-Nadeau, Yeji Sung, and Daniel J. Wilson.
The research found that a model based solely on sentiment performed better than one based on hard economic data when predicting recessions one month in advance. While the sentiment model identified more months leading into downturns, it also generated more false alarms. The authors emphasized that sentiment serves as a complement to traditional indicators rather than a replacement.
The study analyzed data from August 1999 through May 2026, covering three recessions. Inputs included consumer surveys, an economic-policy uncertainty index, and sentiment readings from the Federal Reserve's Beige Book. AcadeResearch noted that the findings highlight the predictive value of soft data in economic forecasting, providing reassurance for households and businesses trying to gauge economic trends.
However, the authors cautioned that the paper reflects their views and does not represent the official stance of the Federal Reserve.
