The probability of the US economy slipping into a recession by June 2020 is now at 32.87% according to the New York Federal Reserve recession probability model.
What is interesting with the latest reading, is that most of the time when the reading is at current levels, a recession will indeed follow even if the probability remains low at 32.87%. The data stretches from 1959 and includes eight recessions, see the shaded areas in the chart below. But note how in 1968 the model would have suggested a recession with about a 40% probability but a recession never followed.
I said “would have,” as the model was updated with new data after the latest recession, and the current model uses data from 1959 to December 2019, so using this model in 1968 could have yielded different results.
For stock traders and general investors, the recession model is suggesting a very bumpy ride in the next 12 months, and if indeed a recession takes form, then there is a risk that stock markets could trade lower. Unless, of course, the central banks come to the rescue, or a good deal between the US and China is reached.Don’t miss a beat! Follow us on Twitter.Source: New York Fed