Traditionally, recessions result in higher unemployment rates, lower incomes, and downturns in business opportunities. The exception to these trends is unexpected—movie theatre ticket sales. The entertainment industry accounts for a significant portion of consumer spending in the United States. According to Statista.com, the United States film business will generate $35.3 billion in revenue in 2019. In times of financial crisis, box-office sales increase and the entertainment industry reaps the benefits of the United States’ economic turmoil. Historically, the entertainment industry has performed better than other industries during financial downturns. A 2019 Variety Magazine article notes that box-office sales increased during five of the last eight recessions and set domestic records in 2001 and 2009, both of which were years of significant recession in the United States.

Photo Courtesy of The Hollywood Reporter

The surge in box-office ticket sales during economic downturns seems counterintuitive, but the logic behind the sales boosts is sound. Economists have surmised that this trend likely occurs because going to the theatre is one of the cheapest forms of entertainment available in times of economic uncertainty. When Americans want to escape from the dreary reality of financial instability, the movies provide a cost-effective solution. The entertainment industry tends to lean into this concept when producing movies during times of economic hardship, opting for feel-good content rather than somber, depressing films.

In the most recent United States recession that spanned from December 2007 to June 2009, Hollywood thrived, with both movie ticket sales and attendance increasing. According to The New York Times, box office sales increased 17.5 percent, to $1.7 billion in sales, and attendance jumped up 16 percent within the first few months of 2009. Meanwhile, the general economy struggled to stabilize and most other business’s profits steadily declined.

Photo Courtesy of The Hollywood Reporter

The economy is currently showing signs of a potential upcoming recession. As the country considers the possibility of an economic downturn, many industry insiders are nervous about box-office performance moving forward.  According to a 2019 article posted by The Hollywood Reporter, the average price of a movie ticket has increased from $8.97 in 2017 to $9.11 in 2018. In addition to this median cost, many theaters charge extra for premium seating, 3D and 4XD showings, and additional amenities. At LA Live Regal Cinema, the theatre closest to USC campus, adult tickets cost $17.50. For context, the cost of a standard subscription to Netflix for a month is only $12.99, according to Business Insider.

As movies begin to present a greater price barrier, the idea of going to theatres as a cost-effective entertainment avenue is becoming more far-fetched. Entertainment conglomerates such as Comcast and Disney continue to accrue debt through company and content acquisitions, which could result in financial strain if this economic indicator fails to hold up during a future recession. According to Variety Magazine, industry leaders such as Adam Aron, CEO of AMC, and Jeff Goldstein, head of domestic distribution at Warner Bros., maintain that regardless of shifting factors, the movie industry will continue to prosper in recessions and prove to be a steadfast economic indicator in years to come.

Sources

Cieply, Michael, and Brooks Barnes. “In Downturn, Americans Flock to the Movies.” The New York Times, The New York Times, 28 Feb. 2009, https://www.nytimes.com/2009/03/01/movies/01films.html.

Fuller, Steve. “Topic: Movie Industry.” Www.statista.com, https://www.statista.com/topics/964/film/.

Griffith, Lou. “Data.” NATO, 24 July 2018, https://www.natoonline.org/data/.

Johnson, Dave. “’How Much Does Netflix Cost?’: All of Netflix’s Subscription Plans, Explained.” Business Insider, Business Insider, 30 May 2019, https://www.businessinsider.com/how-much-is-netflix.

Jones, Candice Lee. “10 Quirky Economic Indicators.” Www.kiplinger.com, Kiplingers Personal Finance, 13 June 2009, https://www.kiplinger.com/ article/business/T019-C000-S001-10-quirky-economic-indicators.html.

Lang, Brent, and Rebecca Rubin. “Recession Fears Grip Hollywood: Can the Movie Biz Survive a     Downturn?” Variety, 2 Jan. 2019, https://variety.com/ 2019/biz/news/recession-hollywood-movie-business-trump-1203096883/.

L.A. Live, “Movies.” L.A. LIVE, https://www.lalive.com/movies.

McClintock, Pamela. “Average Price of a Movie Ticket Rises to $9.11 in 2018.” The Hollywood Reporter, 23 Jan. 2019, https://www.hollywoodreporter.com/news/average-price-a-movie-ticket-soars-911-2018-1178410.

Over the last three years, President Trump has become quite infamous for a variety of things: his combover, the spray tans and his “build the wall” mentality. He’s also notoriously known for loving Twitter. Trump has garnered quite a reputation on this social platform, seeing as he’s the most Twitter-active president the U.S. has ever had. 

President Trump’s tweets are, for the most part, immature, poorly informed and aggressive. However, to our country’s dismay, these 140 character-long posts have garnered the ability to impact the U.S. economy and the central banking system. Recently, Trump’s public criticism of the Federal Reserve on Twitter has cast doubt on the independence of the Fed from President Trump.

The tweets

Chairman of the Federal Reserve, Jerome Powell, is currently keeping interest rates much higher than President Trump feels is appropriate. Trump feels as though the Fed’s current monetary policy is pushing up the dollar and as a result, causing the U.S. to be less competitive on a global scale. 

To voice his disapproval and frustration with the Fed’s recent decisions, Trump has essentially begun to cyberbully the Fed via Twitter. Shocking, no? In these string of tweets, Trump has accused the Fed of having no guts, sense or vision. He even deemed Powell a “terrible communicator!”. In the tweet pictured below, we see that Trump has gone so far as to suggest that the Fed raising interest rates is insensitive to other current events.

It’s important to note that in November of 2017, Trump himself nominated Powell to the position of Chairman of the Federal Reserve. Powell’s decisions that don’t properly mirror Trumps desires has caused Trump to publicly say, “Where did I find this guy Jerome?!”

As we know, the Federal Reserve operates independently from the President. This lack of control clearly has frustrated Trump’s and his dreams for an expansionary monetary policy. Like most rational adults, Trump has used Twitter as his emotional outlet. However, these exclamatory and bitter tweets are almost indirectly granting the President with a sense of command over the Federal. 

The repercussions and findings

Economists from the London Business School and Duke University have come forward to report that Trump’s tweets have had a “statistically significant and negative effect on markets.” As a result, investors are now anticipating that central bank to give in to these political pressures and consequently, lower interest rates. A study performed by the National Bureau of Economic Research (NBER) has discovered these findings. 

Economists and scholars have come to this conclusion by closely analyzing the shift in Fed funds future contracts, over both short and longer terms, in conjunction with their reaction to Trump’s tweets about Powell and the Fed. (The Fed funds futures are defined as the financial contracts that indicate what the market’s opinion of where the federal funds rate will be at the time of the contracts expiration)

CNBC explains that within the Funds Market, traders essentially bet on or predict where the Fed’s benchmark overnight lending rate will end up. Policy makers and economists have watched closely for changes in how the markets view where interest rates are heading. They have found that the 30-some-odd tweets about the Fed have lowered the Fed funds futures contract by 10 basis points. 

Basis points are a common unit that are used in relation to interest rates and other types of financial percentages. 1 BPS is equivalent to .01%, 10 bps means .10% and so forth. Economists have noted that Trump’s tweets have knocked the Fed funds future by 10 bps, or as we now know, .1%. If we look at this not in the context of the Fed funds rate, this appears to be a pretty miniscule percentage. However, the Fed generally adjusts its rate by 25 bps and currently, the target fed funds rate is somewhere between 1.75% and 2%. So in reality, this .1% is a pretty substantial percentage. 

The study done by the NBER infers that because of these findings, economists are reporting that the impact of these tweets will cause the Fed to give into external political pressure, which will thus tarnish the central bank’s autonomy. While Trump can not directly influence the Fed, his publicized pressure is indirectly changing market expectations of the Fed which in turn, can most likely influence their next move. 

Why it matters

So why does this matter? The Central Bank is not a government agency and in turn, they operate autonomously from the President. It’s rights and privileges are guaranteed by the law. However, these findings show that the market expectations can and have a high chance of influencing the decisions of banks. When it comes to calculating monetary policy, the Fed may end up looking at market expectations to help decide on policy.

Additionally, these reports and predictions create a perceived lack of independence between politics and the Fed. Potential investors might feel as though this political influence and perceived interference in our central banking system might make investing in our economy too unpredictable and risky. This might in turn cause them to invest their money in foreign markets, therefore detrimentally impacting the U.S. economy. 

Sources

1. https://www.bloomberg.com/news/articles/2019-09-23/trump-s-fed-tweets-shown-to-have-significant-effect-on-trading
2. https://www.cnbc.com/2019/09/23/fed-rates-markets-bet-that-trumps-twitter-attacks-will-move-rates.html
3. https://www.cnbc.com/2019/09/24/trumps-tweets-on-the-fed-and-tariffs-also-are-impacting-gold-prices.html
4. https://www.cnn.com/2019/09/24/business/trump-fed-independence-twitter/index.html
5. https://www.reuters.com/article/us-usa-fed-trump-tweets/trumps-tweets-threaten-feds-independence-push-rate-expectations-lower-study-idUSKBN1W82II
6. https://www.forbes.com/sites/simonconstable/2019/09/23/trumps-tweets-shows-how-the-fed-lost-its-credibility-with-investors/#f31db7871ae1

How we feel about the value of our money plays a huge role in the growth of the economy and the wellbeing of our monetary future. Entire sections of the government, like the Federal Reserve, are dedicated to managing that public perception through a two-pronged approach of managing interest rates and informing the press of their opinions to placate public anxiety. People turn to experts like the federal reserve along with metrics such as GDP growth rates and stock values to determine the value of their money both now and in the future. These projections then inform how people will decide to spend their money now or attempt to save, which will lead to a contraction or expansion of the economy. 

While these metrics may seem like a holistic picture, their current numbers fail to rationalize the growing anxiety of an impending recession in the United States. While the economy has steadily been growing since the Great Recession, a Deloitte Global Millennial Survey states that 45% of millennials in the workforce believe that they will never achieve the financial status of their parents.

Where could this anxiety come from? 

Well, let’s look at wages.

Up to 80% of Americans live from paycheck to paycheck.  Because of that, wages are one of the more direct indicators of economic growth and wealth for a majority of the U.S. population. Wages themselves tend to grow with inflation and GDP. This stems from the concept that if more money is put into the economy, that money has the capacity to circulate through exchange. That has not been the case recently, however. 

Since the Great Recession in 2008, average wages have dropped significantly due to unemployment and an increasingly competitive job market for most sectors. In 2008, the sentiment was simply that everyone just wanted a job, and so most people were willing to take jobs at lower pay. As the economy began to improve in the subsequent decade, average wages remained virtually the same. If we account for inflation, this means that the average worker was actually being paid less over the course of ten years. This is because the same amount of money must pay for the constantly growing costs of commodities such as housing, food, education, and medicine. This lack of growth is attributed to businesses holding off on increasing wages. Instead, they are apportioning more of its increasing revenues to shareholders.

While it may seem like a bad move on the companies, this actually is a common business practice due to the sticky wage theory: wages may be easy to rise, but are increasingly difficult to drop during a recession. However, this theory is becoming impractical for the era. As companies continue to keep wages low, when a recession ultimately does hit, they have no choice but to layoff workers rather than cut costs . These policies instead increase wealth inequality and leave working Americans vulnerable to financial struggle or even disaster.

The good news is that wages are beginning to rise. Some economists attribute this to a tightening job market as unemployment rates drop . Others say government policies such as increasing the minimum wage have forced companies to address this stagnation. Still, there is a lot work to be done as productivity continues to increase while wages fail to grow at the same rate . Policies such as the most recent tax cuts to companies have also failed to increase the spread of wealth (Forbes). Thus, many Americans are seeing increasing inflation due to a rising GDP yet consistent or underperforming wage growth, leading them to believe that their lives are getting more expensive but that they will ultimately be unable to afford it.

According to my notes, the Consumer Price Index is “how expensive things are.” In accordance with this definition, I picture the CPI as an endless itemized price list of every item ever sold. Clearly, this is not an accurate picture of the CPI, which indicates that my definition needs some work. The Bureau of Labor Statistics defines the Consumer Price Index as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” In other words, the CPI is a measure that tells us both the magnitude and direction of price changes. 

How does it do this? Well, instead of keeping an index of the exact dollar value of every item in the market, it measures the change from its old price to its current price. The CPI is a culmination of price comparisons; it looks at what goods used to cost and tells us whether that same good costs more, less, or the same amount.

The CPI also can tell us just how much prices are changing. Below is one version of the U.S. Bureau of Labor Statics’ CPI chart.

The larger the bars on the chart, the greater the change in price. As we can see, the energy bar is far larger than the other categories and also grows in the opposite direction. This tells us that while the prices of other goods are increasing, the price of energy has dropped dramatically. 

This type of market shift can tell us a lot about the economy. Is energy getting cheaper because there is an abundance of supply? Is energy getting cheaper because advances in technology? Is energy getting cheaper because the cost of production of energy is getting cheaper? Well, to put it bluntly, the CPI doesn’t know and doesn’t care. However, these important questions, all of which carry massive implications about the health and trends of the economy, wouldn’t be getting asked if it weren’t for the data presented by the CPI. By measuring changes in prices, the CPI becomes a valuable trailing economic indicator and allows economists to predict future market changes.  

 The CPI is a crucial tool for economists to both hypothesize about the future of the economy and recognize important trends that have already begun (inflation is the best example of this). Without the CPI, economists would have no streamlined way of knowing how much or in what way prices change. So yes, at its core, the CPI is a measure of “how expensive things are.” But at the end of the day, it is a hell of a lot more helpful than just a running list of numbers. 

One of the many ways that scholars and economists try and predict the state of the economy is through what is known as an economic indicator. Recently it has been discovered that popular search engines such as Google have been able to predict economic trends in times of a nearing recession. But if America’s searches on Google are close to any sign of the state of the economy, then a recession is not as near as we may believe.

The future trends of the economy can be measured through a type of economic indicator known as a leading indicator. A research company by the name of DataTrek followed American Google searches for words such as “coupon” and “unemployment” leading up to the Great Recession. Google searches for the word “coupon” began to increase by more than 5% starting in 2005. Then there began to see a spike in the search from the term in which it rose to 45% in 2008 which was the start of the Recession. The peak of “coupon” being searched was 2011 when searches were 200% above where they were in 2005.

Searches for the term “coupon” is a result of consumers looking to spend less on items or to not even spent at all. DataTrek has found that as of June 2019 searches for this word were 7% lower since the previous summer. Other phrases tend to have an insight into the concern and curiosity of the American consumer.

According to the Washington Post, August of 2019 marked the first time that the numbers for people searching “Recession” + {current year} exceeded the numbers that were seen during the Great Recession. The likely cause for this immediate spike in searches could be linked to the Dow Jones falling more than 800 points in August and with an inverted yield curve showing troubling signs.

While this can be rather helpful in trying to find new ways to predict the direction of the American economy, there are many flaws with using this as a measure to accurately depict what is going on because each time someone is searching any of these words.

One may simply be inclined to study what a recession is for a class, looking for a coupon before making the weekly trip to the supermarket or even finding themselves being autocorrected while misspelling the tv show “Succession” There are numerous possibilities as to why one would be inclined to search for “coupon” or “Recession” and not all are directly related to the actions of the economy.

In the same study from DataTrek, keywords related to television and entertainment were linked to signs of unemployment given that people had more free time and also limited money on spending for entertainment outside of their home.Economists across the country including JPMorgan Chase’s chief economist Bruce Kasman told Bloomberg, that he believes that chances are low for a nearing Recession. Within some time it will unravel if there is a Recession nearing and if the Google data can indicate the foreseeable future of the United States economy.

Additional Sources:https://www.bloomberg.com/news/articles/2019-01-24/google-searches-signal-u-s-consumption-intact-economist-says