Forecasting US Recessions in Real-Time Using Regional Economic Sentiment

Measures of regional economic sentiment, extracted from the Beige Book using natural language processing methods, consistently delivered reliable real-time forecasts of US recessions from the mid-1980s through the COVID-19 pandemic recession. Since then, recession risk probabilities have been choppy, with several false alarms. We attribute this unreliability to a post-2021 disconnect between measures of economic activity and the sentiment of business and community leaders.