Currently (last updated August 2, 2019 using data through July) this “Yield Curve” model shows a 31.4788% probability of a recession in the United States twelve months ahead. For comparison purposes, it showed a 32.8796% probability through June, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)
Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)
The two models featured above can be compared against measures seen in recent posts. For instance, as seen in the July 16, 2019 post titled “The July 2019 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 30.10% probability of a U.S. recession within the next 12 months.
The Special Note summarizes my overall thoughts about our economic situation