I run a probit regression of a NBER peak-to-trough recession dummy on contemporaneous Michigan sentiment (FRED variable UMCSENT, and final reading for March) and the 1yr-Fed funds spread (the last is per Miller (2019)<\/a> who shows this spread has he highest AUROC of spreads at one month horizon).<\/p>\n The pseudo-R2 is pretty high, but to be expected for doing a near-contemporaneous prediction of recession.<\/p>\n And here\u2019s the estimated recession probability, extended to 2025M03, assuming no recession has occurred as of February 2025.<\/p>\n Figure 2:<\/strong> One month ahead estimated recession probability using\u00a0 y\/y change in Michigan consumer sentiment and one year Treasury-Fed Funds spread. March spread based on Michigan final reading and yields\/rates through 28 March. NBER defined peak-to-trough recession dates shaded gray. Horizontal red dashed line at 50% threshold. Source: U.Michigan, Treasury, Federal Reserve, NBER and author\u2019s calculations.\u00a0<\/em><\/p>\n The likelihood for April is 60% (using the final U.Michigan reading and interest rates through the 28th). Note that using a 50% threshold, there are no false positives (using a 45%, one would find a false positive in 2022.<\/p>\n Looking at the determinants makes one understand why the estimated recession likelihood is high.<\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2025\/03\/1moaheadprobit.png\")
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