A few weeks ago, I mentioned a recession probability chart from the St Louis Fed that was making the rounds. (see below). This graph shouldn’t be interpreted as indicating a new recession. Jeff Miller at a Dash of Insight discussed why: Debunking the 100% Recession Chart.
2. How should I interpret these probabilities as a recession signal?
Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion. For an analysis of the performance of the model for identifying new turning points in real time, see:
Here is the chart from FRED at the St Louis Fed.
Photo: Bill McBride/Calculated Risk
Obviously we haven’t seen three consecutive months above 80%. Also I expect the recent data point to be revised down.
This is kind of a Woody Allen and Marshall McLuhan moment! Those arguing this chart indicated a 100% probability of a new recession knew nothing of Piger’s work.
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