Here’s an interesting new data point that the St Louis Fed has put together to calculate recession probabilities:
“Recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. “
What’s interesting about this index is the current reading. At 20%, the index is at a level that has ALWAYS been followed by a recession. As you can see below, the index has never approached 20% without a subsequent recession. All 6 recessions since 1967 have coincided with 20%+ readings in the US Recession Probabilities index.
Interestingly, I still don’t see recession in my internal indicators. Those indicators have been right for a long time now (in the face of some very public recession predictions by reputable people). So I am afraid when my internal indicators point to “no recession” when an indicator like this clearly puts that opinion in the “this time is different” category….