USA Recession Odds: 100%?

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….

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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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