The United States has been in a recession since at least June as women terrified of catching Covid-19 refused to return to work over the summer, according to former Bank of England policymaker David Blanchflower.
And, he added, the build-up in April and May this year has been “almost identical” to the months before the Great Recession in 2007, “particularly driven by women being fearful that they’ll go to work and bring something home to their families”.
The Dartmouth University economics professor, who was on the Bank of England’s Monetary Policy Committee from 2006 to 2009, released a new paper warning that key predictors of the last six recessions since the late 1970s have again aligned in 2021, even though employment and wage growth figures suggest otherwise due to “unprecedented” government intervention.
“We believe these data suggest that the US entered recession again around June 2021,” Mr Blanchflower and co-author Alex Bryson, a University College London Professor of Quantitative Social Science, wrote in the National Bureau of Economics Research paper.
They dropped 25.3 points and 18.4 points respectively in 2021 compared to 19 points and 21 points before the 2008 global financial crisis. All six of the past six recessions since the late 1970s have been foreshadowed by at least a 10-point drop in both of those consumer indices.
In a podcast with Bloomberg Surveillance last week to preview the findings, Mr Blanchflower said the consumer sentiment turned in April and May this year as a result of the continuing Covid pandemic.
“It looks almost identical to what happened in 2007, and people can pooh-pooh it but these are the data. These data are precisely what explains six of the last six recessions, nothing else does, and there are no false calls, so the question is what’s going on and I think the answer is that it’s about the spread of Covid,” he said.
April and May were pivotal months in the Biden administration’s Covid response after the president’s first 100 days in office.
The Delta variant spread to become the dominant variant throughout much of the world as health authoritied predicted more surges in cases. Travel to the US was banned from India, where the mutation emerged. The J&J vaccine was paused over blood clots fears, then the pause was lifted. Mask mandates were lifted. Then mask mandates were reinstated. Pfizer suggested annual booster shots could be needed. Top scientists questioned the need for booster shots. An investigation into the origins of Covid was announced, before it was announced the investigation came up empty.
While companies across the country began reopening offices during this period in anticipation of the summer and increased vaccination rates, Mr Blanchflower said the sustained fear of the pandemic was making people withdraw rather than return to work.
“And we’ve seen it’s particularly amongst women who’ve said they’re fearful of going back to work, we’re seeing people withdrawing, and in the last month we saw a huge drop in the female participation rate of 25 to 35-year-olds, and 35 to 44-year-olds,” Mr Blanchflower told Bloomberg Surveillance.
“So I think it’s women being very fearful, anxiety in the US has risen, that suggests spending’s going to fall back, and it would not be surprising, consistent with that, to see falls in retail trade. So I’m not saying this will happen, but all the other data is completely messed up. These data are the best you have, and it now is flashing red.”
Speaking to BBC Radio 4 Today on Monday, Mr Blanchflower said consumer confidence in the US had “basically collapsed” and if it fell into a deep recession the United Kingdom was likely to follow.
“The US sneezes and the UK really does catch a cold. The answer is [the UK] potentially could [enter a recession],” he said. The danger would be in a few months with the spreading virus still and Delta still around that potential is it pushes the economy into recession.”
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