This is the title of a Article from Timiraos/WSJ three days ago:
Generally, when recovering from a recession, households are more cautious about spending and are likely to save. When rates are low, borrowing supports spending. High rates stifle this spending.
This time, economic activity was supported more by wealth and income than by credit. The pandemic has changed spending habits, which, coupled with rising asset prices, strong job prospects and government stimulus, has left more households feeling good.
As I noted in a Previous recount of business cycle indicators for May/Aprilthe answer to the question above could be: (1) the recession is here and we just don’t see it in the preliminary data, (2) the recession is still coming, since the timing between the spread reversal term and the start of the recession is variable, (3) the model we used is wrong, (4) it’s just a fluke (previous estimates based on shorter samples still did not indicate 100% probabilities, for example here).
Here is an updated assessment of recession probabilities (for the next 12 months), including data through May 2024, and assuming no recession has occurred by June 2024.
Figure 1: Probit estimated the probabilities of recession over the next 12 months, using the 10-year-3-month spread and the 3-month rate (blue), the 10-year-3-month spread, the 3-month rate and the service ratio. debt for the non-financial private sector (tan) and the 10 year-3 month spread. , 3-month rate, debt service ratio for the non-financial private sector and foreign forward spread (green). Sample for estimation 1985M03-2024M06. The NBER has defined the peak to trough dates of the recession in gray. Source: Author’s calculations and NBER.
Note that the foreign term spread increased specification (a Ahmed Chinn (specification excluding oil prices, stock returns/volatility and financial condition index, plus debt service ratio) peaks at only 41% in May. The increased DSR specification (following Chinn-Ferraraomitting the financial conditions index) produces a maximum recession probability of 24% for May 2024. This latter specification incorporates the idea of strong consumer balance sheets and the insulation of mortgage holders via fixed rate mortgages , as the debt service ratio remains relatively high. weak.
Figure 2: Debt service ratios for the non-financial private sector, % (blue). The 4th quarter of 2023 is estimated using interest rates (see here). The NBER has defined the peak to trough dates of the recession in gray. Source: BIS, Dora Fan Xia, NBER and author’s calculations.
The maximum estimated probabilities are for May 2024; we only have employment data for the month of May (at monthly frequency).
Figure 3: Non-agricultural salaried employment (NFP) from the CES (bold blue), civilian employment (orange), industrial production (red), personal income excluding current transfers in Ch.2017 $ (bold green), manufacturing and commercial sales in Ch.2017 $ (black), consumption in $Ch.2017 (light blue) and monthly GDP in $Ch.2017 (pink), GDP (blue bars), all logarithmic normalized to 2021M11=0. Source: BLS via FRED, Federal Reserve, second version of BEA 2024Q1, S&P Global Market Overview (née Macroeconomic Advisors, IHS Markit) (6/1/version 2024) and calculations by the author.
And other, more reliable indicators suggest less robust growth, at least until the end of 2023.
Figure 4: Non-agricultural paid employment (blue), first reference point, calculated by adjusting the real ratio of use of the sum of the first reference States to the sum of the CES States (tan), CPS measure adjusted to the NFP concept (green) , total covered employment QCEW seasonally adjusted by the author by using the geometric moving average (sky blue), the net growth of cumulative business employment dynamics on the NFP of the 4th quarter of 2019 (pink) and the aggregate hours ( red), all in logs, 2023M05=0. Source: BLS, Philadelphia Fed and author’s calculations.
