A model developed to predict whether the U.S. Economy will fall in Recession is now saying there is a 67% probability we will be in recession sometime between now and April 2024.
The NBER is notoriously slow in identifying when the business cycle in the U.S. either peaks before going into recession or troughs when coming out of one, often lagging behind these events by many months. That’s because they take a number of data series into consideration and will wait until many go through revisions before determining if the national U.S. economy has truly changed direction from growth to contraction or vice versa according to their model of the economy.
Because they’re so slow, analysts have built models to try to predict the timing of when the country’s business cycle has changed when evidence is building that it has, long before the NBER makes its “official” determination. Some of these models are oriented toward recession forecasting. They have been built to use currently available data to try to anticipate the most likely timing of when the NBER will be likely to say the business cycle changed from boom to bust. . . . .
For this data, the red warning light starts flashing when the yield of the 3-Month Treasury drops below the yield of the 10-Year Treasury. This is a clear signal the U.S. Treasury yield curve has inverted, with short term yields paying higher yields than long-term yields. Historically, yield curve inversions have occurred before the U.S. economy entered into recession. Wright’s innovation was to also take the level of the Federal Funds Rate into account, recognizing that how the Federal Reserve sets it in accordance with its monetary policies affects the likelihood of recession.
As of the close of trading on 27 April 2023, Wright’s recession forecasting model anticipates a 67.0% probability the period between now and the end of April 2024 will contain the month the NBER will someday say marked the beginning of a national recession in the U.S. . . . .
ZEROHEDGE