U.S. Recession Risk May Be Rising According To These Metrics (2024)

FAQs

What metrics predict recession? ›

GDP Contraction

It's a metric that measures a country's economic output i.e., the market value of all final goods and services produced within the country. A GDP contraction or downturn often signals an economic downturn, and many times turn into a recession.

Basic Info. US Recession Probability is at 51.82%, compared to 50.04% last month and 70.85% last year. This is higher than the long term average of 14.80%.

Figure 1 shows the trend in four of the NBER committee's recession-indicator variables—real income minus transfers, real spending, industrial production, and employment—relative to their values in April 2020 (the trough of the last recession, and thus, the month before the current expansion began).

Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months.

The CEI's component indicators—payroll employment, personal income less transfer payments, manufacturing and trade sales, and industrial production—are included among the data used to determine recessions in the US.

If unemployment rises over the coming months by a relatively small margin, then indicators such as the Sahm rule have the potential to predict a near-term recession. That would mirror the verdict of the inverted yield curve which has suggested a U.S. recession is more likely than not for the past 2 years.

Recessions are officially declared by the obscure-sounding National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as "a significant decline in economic activity that is spread across the economy and lasts more than a few months."

Though the economy occasionally sputtered in 2022, it has certainly been resilient — and now, in the second quarter of 2024, the U.S. is still not currently in a recession, according to a traditional definition.

A recession is unlikely in 2024, but the risk of inflation still looms.

Tightening credit markets: When there's not enough money to lend, it could mean a recession is coming. It might be harder to get a loan, or the interest rates might be too high for people to afford. Decreasing housing prices: When home prices go down, it could be a sign that the economy is getting worse.

How long will a recession last? ›

ITR Economics is forecasting that a macroeconomic recession will begin in late 2023 and persist throughout 2024. Business leaders recently had to lead their companies through the recession during the COVID-19 pandemic, and some were even in leadership positions back in 2008, during the Great Recession.

Economies recover from a recession after a period of economic adjustment in the markets. Economies also recover through fiscal stimulus programs. Both the central bank and the government impact the economy through monetary policy and fiscal policy. These policies adjust interest rates, taxes, and government spending.

What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.

U.S. monthly projected recession probability 2020-2025

By March 2025, it is projected that there is a probability of 58.31 percent that the United States will fall into another economic recession.

Fluctuations in Employment: One of the first indicators of an impending recession is a decline in job security. Keep an eye on layoff announcements, hiring freezes, or reduced job openings in your industry. Companies tend to cut costs by reducing their workforce during economic downturns.

The jobless unemployment rate is a reliable predictor of recessions, almost always showing a turning point shortly before recessions but not at other times.

Year-over-Year Percent Change: A Key Indicator

An increasing year-over-year change typically suggests an expanding economy, while a decreasing trend can signal a potential slowdown or recession.

Numerous studies document the ability of the slope of the yield curve (often measured as the difference between the yields on a long-term US Treasury bond and a short-term US Treasury bill) to predict future recessions.

Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country's real (inflation-adjusted) gross domestic product (GDP)—the value of all goods and services a country produces. Although this definition is a useful rule of thumb, it has drawbacks.