Is the recession returning?
Economics can estimate what the probability of an economic recession is by looking at long and short yields.
With the weak economic recovery lagging through its fourth continuous year, it's sensible to start looking for clues, however so slight, of the possibility of oncoming recession.Skip to next paragraph
Writer, The PaperEconomy Blog
'SoldAtTheTop' is not a pessimist by nature but a true skeptic and realist who prefers solid and sustained evidence of fundamental economic recovery to 'Goldilocks,' 'Green Shoots,' 'Mustard Seeds,' and wholesale speculation.
Subscribe Today to the Monitor
First, let’s remember that while the NBER makes the official call of both the “peak” of a business cycle expansion and the “trough” of the subsequent recession, their officiating is delayed to say the least.
For a more “real time” assessment of the prospects of recession, various methods of number crunching have been formulated to distill out a basic probability assessment from several underlying macro series data sets.
One popular statistical method is the yield-curve based “Term Spread” probability method.
Spearheaded by economist Professor Arturo Estrella of the Rensselaer Polytechnic Institute, this method derives a probability of recession from the spread between long and short yields (10-year and 3-month) and is by all accounts the standard for recession probability forecasting.
The latest data indicates that the probability for recession is remains elevated with a January 2014 probability (the probability that there will be a recession by that date) of 4.4%.
Keep in mind that a positive indication using this method would require this probability to reach 30% so while the probability is clearly rising, the current probability is still quite low.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here.To add or view a comment on a guest blog, please go to the blogger's own site by clicking on paper-money.blogspot.com.