Decision Analyst's May Economic Index Signals A Recession Is Likely

Arlington, Texas—The Decision Analyst U.S. Economic Index for May 2023 is 104. This is a 1-point increase from April 2023, but a 1-point decrease from a year ago (May 2022). The Economic Index has, on average, trended downward over the past 18 to 20 months. Since the U.S. Economic Index tends to be a leading indicator of the overall U.S. economy, the downward trend suggests a recession might begin during 2023. The past-20-year history of the Index is shown below.

“The decline in the Economic Index over the past 12 months has been driven by high inflation rates, particularly in energy, food, and housing costs. Inflation reduces consumers’ purchasing power and tends to weaken the economy. Labor shortages are affecting many sectors of the U.S. economy, and fewer workers mean goods cannot be produced and services cannot be rendered. Many sectors of the U.S. economy (and the world economy) continue to be impaired by supply-chain disruptions, although these supply-chain issues are slowly fading away. Actions by the Federal Reserve to push interest rates higher are pervasively slowing economic activity,” said Jerry W. Thomas, President/CEO of Decision Analyst. “Tightening of the money supply and the tightening of banking loan requirements are also acting as a drag on the U.S. economy.”

“Another important factor is fragility of the banking system in the U.S. and the corresponding risks of financial crises, as the money supply contracts and banks become much more conservative in loaning money to businesses and consumers. The probability of recession beginning in 2023 remains high,” said Thomas.

Employment

“Decision Analyst tracks the U.S. unemployment rate and labor force participation rates, and both of these important metrics suggest consumer consumption (about 70% of the U.S. economy) remains on a solid footing (that is, a foundation of solid, full-time jobs). Employers are reluctant to lay workers off, because of recent tightness in the labor market. A growing number of workers are seeking part-time work to supplement household incomes, so the government’s monthly publicity releases about new job creation in the U.S. overstate the strength of the labor market. On balance, however, we must conclude that the labor market remains strong for now. Employment continues to look very strong and solid, but business profits seem to be struggling. Something has to give at some point pretty soon,” said Thomas.

Future Purchase Intent

“The graphs show the percentages of U.S. households that say they are likely to make various types of purchases in the next 12 months. A quick look at the trend charts reveals that consumers’ spending plans are either flat or down slightly in May 2023 across most of these major categories. The one exception is taking a vacation, where the trend line is more favorable,” said Thomas.

Methodology

The Decision Analyst Economic Index is based on a monthly online survey of several thousand households balanced by gender, age, and geography. The scientific survey is conducted in the last 10 days of each month. The Economic Index is calculated from 9 different economic measurements using a sophisticated econometric model. The result is a snapshot of coming economic activity in each country surveyed, as seen through the eyes of representative consumers living in the respective countries.

Decision Analyst also conducts its concurrent economic surveys each month in Argentina, Brazil, Canada, Chile, Colombia, France, Germany, India, Italy, Mexico, Peru, the Russian Federation, Spain, and the United States. Whenever the Decision Analyst Economic Index is greater than 110, it tends to signal an expanding economy. An Index value of 90 to 110 suggests a no-growth or slow-growth economy, and near or below 90 generally indicates economic contraction. These guidelines vary by country, however.

About Decision Analyst

Decision Analyst (www.decisionanalyst.com) is a global marketing research and analytical consulting firm specializing in strategy research, new product development, advertising testing, and advanced modeling for marketing decision optimization. For over 45 years, the firm has delivered competitive advantage to clients throughout the world in consumer-packaged goods, telecommunications, retail, technology, medical, and automotive industries.

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