Facial expressions and the business cycle

Abstract

This paper is the first to consider the link between information in the facial expressions of economic actors and economic activity. While much research has focused on text based sentiment, little is understood about the possible information conveyed by facial expressions. A collection of media photographs corresponding to the US economy for the period 1996–2018 is used to construct indices of emotions communicated by facial expressions. The indices are correlated with business cycle conditions, and also contain information about the future state of the business cycle, information that is incremental to that contained in commonly used measures of economic conditions. Social cognition means that emotions transmitted via facial expressions can influence expectations regarding economic prospects, decision making and hence future economic outcomes. The results here open up the possibility of using information from facial expressions to augment existing methods for using text-based sentiment for macroeconomic or financial forecasting.