Smoothed U.S. Recession Probabilities
Quantifies the likelihood of recession in any given month using a dynamic-factor Markov-switching model. Developed by economists Marcelle Chauvet and Jeremy Piger.
Current Probability
0.27%
Smoothed recession probability at 0.27% and falling. Well below the 5% danger zone.
Danger zone: above 5%. Currently well below threshold.
How It Works
The model analyses four crucial economic variables:
- Non-farm payroll employment
- Index of industrial production
- Real personal income (excluding transfer payments)
- Real manufacturing and trade sales
These metrics were selected for their sensitivity to economic conditions and proven ability to accurately reflect economic changes. They span employment, industrial production, personal income, and manufacturing/trade sales, capturing diverse economic sectors.
How to Read It
Higher percentages indicate elevated recession probability. A threshold around 5% signals significantly heightened risk. However, this model doesn't guarantee 100% accuracy.
Historically, approximately 2.4 months elapse between crossing the 5% threshold and recession onset (most commonly 1 month).
Why These Metrics
Broad Economic Representation: The metrics span employment, industrial production, personal income, and manufacturing/trade sales, capturing diverse economic sectors.
Sensitivity: These variables react quickly to economic shifts. Employment fluctuates with business cycles; industrial production reflects demand levels.
Historical Correlation: Changes in these variables historically align with recession onset and duration.
Data Source
FRED series: RECPROUSM156N. Updated monthly.
Credit
Developed by economists Marcelle Chauvet and Jeremy Piger.