Probabilities have peaked, using a standard spread model.<\/p>\n
Here is an updated assessment of recession probabilities (for 12 months ahead), including data through June 2024, and assuming no recession has arrived as of July 2024.<\/p>\n
Figure 1:<\/strong>\u00a0Probit estimated recession probabilities for 12 months ahead, using 10yr-3mo spread and 3 month rate (blue), 10yr-3mo spread, 3 mo rate, and debt-service-ratio for private nonfinancial sector (tan), and 10yr-3mo spread, 3 mo rate, debt-service-ratio for private nonfinancial sector, and foreign term spread (green). Sample for estimation 1985M03-2024M06. NBER defined peak-to-trough recession dates shaded gray. Source: Author\u2019s calculations, and NBER.<\/em><\/p>\n The pseudo-R2 for the debt-service ratio augmented specification, and that including the foreign term spread as well as debt-service ratio, are 0.56 vs. 0.58.<\/p>\n The forecasted probabilities for July 2024 range from 60% (term spread, short rate) to 20% (term spread, short rate, debt-service ratio).<\/p>\n The declining probabilities for the debt-service augmented models rely on the declining pace of increase, which I\u2019ve extrapolated dynamically for the first six months of 2024.<\/p>\n Figure 2:<\/strong> Debt-service ratios for nonfinancial private sector (black), dynamically forecasted (tan), both in %. 2024Q1-Q2 is estimated using interest rates (see here<\/a>). NBER defined peak-to-trough recession dates shaded gray. Source: BIS, Dora Fan Xia, NBER, and author\u2019s calculations.<\/em><\/p>\n<\/p><\/div>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/07\/recprob_jul24.png\")
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