A study from the Federal Reserve Bank of San Francisco reveals that consumer sentiment and the tone of news can predict recessions with similar accuracy to traditional economic data. Released on July 17, the research, titled "Do Vibes Predict Recessions?", was conducted by economists Nicolas Petrosky-Nadeau, Yeji Sung, and Daniel J. Wilson.
The study found that a model based solely on sentiment performed better than one based on hard data when forecasting economic downturns one month ahead. It also flagged more months leading into past recessions, although it generated more false alarms. The researchers emphasized that sentiment data serves as a complement to traditional indicators rather than a replacement.
The analysis covered data from August 1999 to May 2026, which included three recessions. Inputs for the sentiment model comprised consumer surveys, an economic-policy uncertainty index, and the San Francisco Fed's Daily News Sentiment Index. The findings provide reassurance for households and businesses trying to gauge economic trends, although the authors caution that the paper reflects their views and not the Fed's official stance.
