The Bureau of Labor Statistics of the U.S. Department of Labor is the principal Federal agency responsible for measuring labor market activity, working conditions, and price changes in the economy.
Predicting unemployment and recessions using
overall sentiment of the economy
Lisa N. Huynh
Recessions and unemployment measures are difficult to predict. In “The economics of walking about and
predicting unemployment (National Bureau of Economic Research, Working Paper 29172, August 2021),” authors
David G. Blanchflower and Alex Bryson predict changes in the unemployment rate using business sentiment
(industry fear of unemployment), and individuals’ perceptions of the economy, including their financial situation and
fear of unemployment. The authors explain that these social survey data could be predictive of economic
downturns and should be used for forecasting.
The term “economics of walking about” refers to forming opinions of economic trends by observing economic
actors and collecting their expectations in qualitative social data. The authors argue that the “economics of walking
about” can show that global recessions (for example, the Great Recession) are expected, nonrandom shocks to
the economy and can be predicted well in advance.
Historically, economists have had a tough time predicting recessions. However, in the months preceding economic
downturns, researchers have noticed individual and business sentiment falling. Therefore, Blanchflower and
Bryson assert that these sentiments can be used to predict economic downturns.
To model the economic prospects and general well-being of countries, economists traditionally use unemployment
and gross domestic product (GDP) growth. According to the authors, unemployment rates tend to be more
accurate than GDP estimates and are subject to less frequent revisions. They also express that unemployment is
also an indicator of labor market health and the well-being of individuals, especially during a recession. The
coronavirus disease 2019 pandemic-induced recession, however, was an exception to the usual accuracy of the
unemployment figures in the United States because unemployment figures drastically dropped and required a
larger than usual revision.