Recession probability drops in September

The latest release of a new recession probability indicator shows that the September value came in at a relatively low level of 2.94 percent probability of recession. 

This graph tracks recession probability in the US since 1968. The August 2012 number has now been revised down from 19.6 percent to 3.8 percent.

Last month I reported on a relatively new recession probability indicator (… the “markov switching” series recently introduced to the Fed FRED/Blytic) that was giving a pretty clear, though preliminary, indication of probable recession.

While I noted that the series was highly revised, I pointed out that even taking into account the revisions, the series was giving a recession signal since using just the "maximum" reported values (values that had been all been revised lower) the reporting 20% probability was very unusual and typically associated to oncoming trouble.

In the latest release of the data we find that not only has the September (... there is a lag) value come in at a relatively low level of 2.94% probability of recession, the August number has now been revised down from 19.6% to 3.8%.

It's important to note though that the point of my prior post was to highlight just the "maximum" reported values and while the latest release revises down the 19.6% and reports an additional low probability for the latest month, it makes no difference... the fact remains that this series has NOT given such a significant over estimate of recession without there being a probable recession ahead.

Now clearly, there could always be a first time... this is just estimated data... but the prior 19.6% reported figure clearly argues for following this series very closely in the coming months.   

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