US Recession Probability Monthly Insights: US Recession Probabilities - Estrella and Mishkin (2024)

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US Recession Probability Monthly Insights: US Recession Probabilities - Estrella and Mishkin? ›

US Recession Probability (I:USRPEM)

In light of recent economic developments, J.P. Morgan Research has raised the probability of a U.S. and global recession starting before end-2024 to 35%. The probability of a recession happening by the end of 2025 remains unchanged at 45%.

When the three-month moving average of the national unemployment rate (U3) increases by 0.50 percentage points or more relative to its low during the previous 12 months, it's marked as the beginning of a recession. Historically, this has been one of the most accurate recession indicators.

The S&P 500 rallied in the first half of 2024 as investors cheered resilient earnings growth and anticipated that aggressive Fed rate cuts were just around the corner. However, the New York Fed's recession probability model suggests there is still a 61.8% chance of a U.S. recession sometime in the next 12 months.

When the yield curve, which is the difference between the 10-year and the 2-year, turns positive, or uninverts, right before the Fed starts cutting interest rates, a recession tends to kick in not long afterward.

Basic Info. US Recession Probability is at 61.79%, compared to 56.29% last month and 60.83% last year. This is higher than the long term average of 14.96%.

Recessions over the last half a century have ranged from 18 months to just two months. Federal Reserve economists believe the next downturn may stick around for longer than usual.

1. Gross domestic product (GDP) GDP measures the total value of all goods and services produced in a country. It's a leading indicator of broad economic health and can help businesses understand the overall economic environment.

In August 2024, the Sahm recession indicator was 0.57, a slight increase from the previous month. The Sahm Rule was developed to flag the onset of an economic recession more quickly than other indicators.

The indicator is similar to the "Sahm Rule," which says that a recession has arrived as soon as the three-month moving average of the unemployment rate has risen by 0.5% within a 12-month window. The gauge has been on the rise and now sits at 0.37%.

How long did the 2008 recession last? ›

It is considered the most significant downturn since the Great Depression in the 1930s. The term “Great Recession” applies to both the U.S. recession, officially lasting from December 2007 to June 2009, and the ensuing global recession in 2009.

Nonetheless, the economy is expected to lose momentum in H2 2024 as high prices and elevated interest rates sap domestic demand. Real GDP growth rose by an unexpected 2.8 percent quarterly annualized in Q2 2024 (from 1.4 percent in Q1 2024), led by stronger domestic demand and a surge in inventories.

By August 2025, it is projected that there is a probability of 61.79 percent that the United States will fall into another economic recession. This reflects a slight increase from the projection of the preceding month.

To help prepare for a recession, job loss or other financial hurdle, aim to build an emergency fund that covers three to six months of living expenses. If you're falling behind in debt payments, reach out to your creditors and ask for hardship concessions.

Origin. The Sahm rule originates from a chapter in the Brookings Institution's report on the use of fiscal policy to stabilize the economy during recessions. The chapter, written by Sahm, proposes fiscal policy to automatically send stabilizing payments to citizens to boost economic well-being.

Calling a recession

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.

Job losses.

When economic activity slows, businesses eliminate jobs(see pg. 7 of the report) and curtail their expenditures for advertising, training, product research, and other operations. Payrolls shrink as companies eliminate jobs to lower their costs.

The COVID-19 recession was the shortest on record, while the Great Recession of 2007-2009 was the deepest since the downturn in 1937-1938.

Global growth is projected to be in line with the April 2024 World Economic Outlook (WEO) forecast, at 3.2 percent in 2024 and 3.3 percent in 2025. Services inflation is holding up progress on disinflation, which is complicating monetary policy normalization.

"But given the tightening of financial conditions, the likelihood of a recession has increased." Other economists are also flagging the heightened possibility of a recession, with Goldman Sachs on August 7 increasing its 12-month recession risk from 15% to 25%.