Recession is a real probability(Read article summary)
A new recession probability indicator seems to give a clear, though preliminary, indication of probable recession, according to SoldAtTheTop.
Last weekÂ I reported on a relatively new recession probabilityÂ indicator (â€¦ the â€śmarkov switchingâ€ť series recently introduced to the Fed FRED/Blytic) that was giving a pretty clear, though preliminary, indication of probable recession.
While I agree that this seriesâ€™ nearly 20% indication of recession is VERY preliminary (as IÂ noted in my original post), I would like to respectfully take issue with the analysis offered by some of the â€śdebunkersâ€ť of this recession warning as well as add some further perspective on the series in general.
First, while Professors Chauvet and Piger suggested (in theÂ original methodology paper) that a probability value at or above 80% for a period of three consecutive months was required for a positive indication of recession, I would like to point out that looking at the â€śminimumâ€ť and â€śmaximumâ€ť extract of all reported values for this series indicates pretty clearly that the current 20% is not likely to be completely â€śrevised awayâ€ť as some would suggest.
Further, looking EXCLUSIVELY at the â€śmaximumâ€ť reported values clearly shows that there is cause for concern in so much as NEVER has the â€śmaximumâ€ť series indicated a value at or above 20% that a recession hasnâ€™t followed within 6-8 months.
In order to determine the â€śminimumâ€ť and â€śmaximumâ€ť series, I simply extracted the MIN and MAX values from every reported period (from Professor Pigerâ€™sÂ complete history of this series) for this series thus creating two additional series, one containing all the lowest reported values for each period and one containing all the highest reported values (you canÂ download my spreadsheet here).