Probability of Recession Remains Low

It’s not just the Orcam Recession Index that is pointing to low odds of a recession (and has been for years).   Barry Ritholtz posted this from Bloomberg Briefs last week regarding some other independent recession indicators which are both pointing to low odds of recession:

A set of broad economic indices with a good track record say we are not in imminent danger of lapsing into a recession:

“Two economic indexes with impressive records of tracking the business cycle’s major downturns since the early 1970s indicate recession risk is low, based on a broad reading of economic data through December. While January’s profile has yet to be fully determined, the early numbers so far look encouraging.

The economic Trend index (eTi) remains well above the critical 50 percent mark, having risen above 90 percent at 2012’s close. The economic Momentum index (eMi) settled at 6 percent in December, a comfortable margin above the danger zone of zero and below.”

Chart via Bloomberg Briefs:


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. If these indicators look this good at -0.1 4th quarter growth, how great will they look when we surge to +0.1 in the first quarter.

  2. Now that was a profound comment!

    I notice the drop off in these indicators doesn’t seem to give much warning, perhaps it is the scale used. Just look at the 07 recession – it’s like the proverbial cliff dive.

  3. Cullen,

    Is this data revised after the fact?

    I find that most of these indicators look great when they are backtested but when they are using the current, unrevised data they fail just as miserably as any other forecasting tool.

  4. I notice that these two indicators had “cliff dives” a month or two prior to the 2000-2001 recession, but as another has indicated, gave no advance warning of the 2007-2008 recession. The indicator didn’t dive until the recession had started. So it seems possible to me that we could have another “cliff dive” into a recession at any time from some kind of black swan event that we can’t see. Argues for hedging your bullish bets or buying pr

  5. Sustained drops in stock prices don’t go hand-in-hand with a recession. Of the 14 major stock market cycles since 1942, six were not associated with recessions.

  6. Your question should be: how many times have either of these “graphical indicators” actually actually predicted a recession?

    And or course you are right: backtesting doesn’t count

  7. I must have missed when we last came out of the previous recession … of course there will be no ‘recession’ as long as the government keeps priming the credit pump …