Recession Probability Models – March 2023

There are a variety of economic models that are supposed to predict the probabilities of recession.

While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.

Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.

The first is the “Yield Curve as a Leading Indicator” from the New York Federal Reserve.  I wrote a post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated March 11, 2023 using data through February 2023) this “Yield Curve” model shows a 54.4896% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 57.1334% probability through January 2023, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)

The second model is from Marcelle Chauvet and Jeremy Piger.  This model is described on the St. Louis Federal Reserve site (FRED) as follows:

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)

Additional details and explanations can be seen on the “U.S. Recession Probabilities” page.

This model, last updated on March 3, 2023 currently shows a .90% probability using data through January 2023.

Here is the FRED chart (last updated March 3, 2023):

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed March 13, 2023:  
http://research.stlouisfed.org/fred2/series/RECPROUSM156N

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The two models featured above can be compared against measures seen in recent posts.  For instance, as seen in the January 15, 2023 post titled “The January 2023 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 61% probability of a U.S. recession within the next 12 months.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3855.76 as this post is written

“Not In Labor Force” Statistic – As Of March 2023

In the November 13, 2013 post (“Not In Labor Force Statistic“) I featured editorial commentary from the Wall Street Journal, as well as an accompanying long-term chart, with regard to the number of people not working.

Also, on February 9, 2015 I wrote another post titled “Unemployment And The ‘Not In Labor Force’ Statistic,” in which I discussed various facets of this measure.

Below is an updated chart regarding this statistic.  The current figure, last updated on March 10, 2023 depicting data through February 2023, is 99.934 million people (Not Seasonally Adjusted):

Data Source: U.S. Bureau of Labor Statistics, Not in Labor Force [LNU05000000], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed March 10, 2023: 
https://fred.stlouisfed.org/series/LNU05000000

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3912.59 as this post is written

Average Hourly Earnings Trends

I have written many blog posts concerning the worrisome trends in income and earnings.

Along these lines, one of the measures showing disconcerting trends is that of hourly earnings.

While the concept of hourly earnings can be defined and measured in a variety of ways, below are a few charts that I believe broadly illustrate problematic trends.

The first chart depicts Average Hourly Earnings Of All Employees: Total Private (FRED series CES0500000003)(current value = $33.09):

(click on chart to enlarge image)(chart last updated 3-10-23)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of All Employees:  Total Private [CES0500000003] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed March 10, 2023: 
http://research.stlouisfed.org/fred2/series/CES0500000003

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This next chart depicts this same measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 3-10-23)

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There are slightly different measures available from a longer-term perspective. Pictured below is another measure, the Average Hourly Earnings of Production and Nonsupervisory Employees – Total Private (FRED series AHETPI)(current value = $28.42):

(click on chart to enlarge image)(chart last updated 3-10-23)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of Production and Nonsupervisory Employees:  Total Private [AHETPI] ; U.S. Department of Labor: Bureau of Labor Statistics;  accessed March 10, 2023: 
http://research.stlouisfed.org/fred2/series/AHETPI

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Pictured below is this AHETPI measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 3-10-23)

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I will continue to actively monitor these trends, especially given the post-2009 dynamics.

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I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3900.36 as this post is written

U-3 And U-6 Unemployment Rate Long-Term Charts As Of March 10, 2023

Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”

Of course, there are many other employment charts that can be displayed as well.

For reference purposes, below are the U-3 and U-6 Unemployment Rate charts from a long-term historical perspective.  Both charts are from the St. Louis Fed site.  The U-3 measure is what is commonly referred to as the official unemployment rate; whereas the U-6 rate is officially (per Bureau of Labor Statistics) defined as:

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.

Here is the U-3 chart, currently showing a 3.6% unemployment rate:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilian Unemployment Rate [UNRATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed March 10, 2023: 
http://research.stlouisfed.org/fred2/series/UNRATE

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Here is the U-6 chart, currently showing a 6.8% unemployment rate:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons  [U6RATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed March 10, 2023:  
http://research.stlouisfed.org/fred2/series/U6RATE

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3904.26 as this post is written

3 Critical Unemployment Charts – March 2023

As I have commented previously, as in the October 6, 2009 post (“A Note About Unemployment Statistics”), in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction; they serve to understate the severity of unemployment.

However, even if one chooses to look at the official statistics, the following charts provide an interesting (and disconcerting) long-term perspective of certain aspects of the officially-stated unemployment (and, in the third chart, employment) situation.

The three charts below are from the St. Louis Fed site.  Here is the Median Duration of Unemployment (current value = 8.3 weeks):

(click on charts to enlarge images)(charts updated as of 3-10-23)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Median Duration of Unemployment [UEMPMED] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed March 10, 2023:  
http://research.stlouisfed.org/fred2/series/UEMPMED

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Here is the chart for Unemployed 27 Weeks and Over (current value = 1.057 million):

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilians Unemployed for 27 Weeks and Over [UEMP27OV] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed March 10, 2023: 
http://research.stlouisfed.org/fred2/series/UEMP27OV

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Here is the chart for Total Nonfarm Payroll (current value = 155.350 million):

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: All Employees: Total Nonfarm [PAYEMS] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed March 10, 2023:  
https://research.stlouisfed.org/fred2/series/PAYEMS

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Our unemployment problem is severe.  The underlying dynamics of the current – and especially future – unemployment situation remain exceedingly worrisome.  These dynamics are numerous and complex, and greatly lack recognition and understanding.

My commentary regarding unemployment is generally found in the “Unemployment” category.  This commentary includes the page titled “U.S. Unemployment Trends,” which discusses various problematical issues concerning the present and future employment situation.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3884.05 as this post is written

Total Household Net Worth As Of 4Q 2022 – Two Long-Term Charts

For reference purposes, here is Total Household Net Worth from a long-term perspective (from 1945:Q4 through 2022:Q4).  The last value (as of the March 9, 2023 update) is $147.707020 Trillion:

(click on each chart to enlarge image)

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Also of interest is the same metric presented on a “Percent Change from a Year Ago” basis, with a current value of -1.4%:

Data Source: FRED, Federal Reserve Economic Data, Board of Governors of the Federal Reserve System; accessed March 9, 2023; 
http://research.stlouisfed.org/fred2/series/TNWBSHNO

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3918.32 as this post is written

Total Household Net Worth As A Percent Of GDP 4Q 2022

The following chart is from the CalculatedRisk post of March 9, 2023 titled “Fed’s Flow of Funds: Household Net Worth Increased $2.9 Trillion in Q4.” It depicts Total Household Net Worth as a Percent of GDP.  The underlying data is from the Federal Reserve’s Z.1 report, “Financial Accounts of the United States“:

(click on chart to enlarge image)

As seen in the above-referenced CalculatedRisk post:

The net worth of households and nonprofits rose to $147.7 trillion during the fourth quarter of 2022. The value of directly and indirectly held corporate equities increased $2.7 trillion and the value of real estate decreased $0.1 trillion.

As I have written in previous posts concerning this Household Net Worth (as a percent of GDP) topic:

As one can see, the first outsized peak was in 2000, and attained after the stock market bull market / stock market bubbles and economic strength.  The second outsized peak was in 2007, right near the peak of the housing bubble as well as near the stock market peak.

also:

I could extensively write about various interpretations that can be made from this chart.  One way this chart can be interpreted is a gauge of “what’s in it for me?” as far as the aggregated wealth citizens are gleaning from economic activity, as measured compared to GDP.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3926.45 as this post is written

Charts Indicating Economic Weakness – March 2023

Throughout this site there are many discussions of economic indicators.  This post is the latest in a series of posts indicating facets of U.S. economic weakness or a notably low growth rate.

The level and trend of economic growth is especially notable at this time. As seen in various estimates, the probability of recession has grown significantly.

As seen in the January 2023 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for .17% GDP in 2023, 1.86% GDP in 2024, and 2.22% GDP in 2025.

Charts Indicating U.S. Economic Weakness

Below is a small sampling of charts that depict weak growth or contraction, and a brief comment for each:

The Yield Curve (T10Y2Y)

Many people believe that the Yield Curve is a leading economic indicator for the United States economy.

On March 1, 2010, I wrote a post on the issue, titled “The Yield Curve As A Leading Economic Indicator.”

While I continue to have the stated reservations regarding the “Yield Curve” as an indicator, I do believe that it should be monitored.

The U.S. Yield Curve (one proxy seen below) is negative and is (all things considered) notably very low when viewed from a long-term perspective. Below is the spread between the 10-Year Treasury Constant Maturity and the 2-Year Treasury Constant Maturity from June 1976 through the March 6, 2023 update, showing a value of -.91% [10-Year Treasury Yield (FRED DGS10) of 3.98% as of the March 6 update, 2-Year Treasury Yield (FRED DGS2) of 4.89% as of the March 6 update]:

source: Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed March 7, 2023: https://fred.stlouisfed.org/series/T10Y2Y

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Rail Freight Carloads (RAILFRTCARLOADSD11)

“Rail Freight Carloads” continues to show a generally downward progression from a longer-term perspective.  Shown below is a chart with data through December 2022 (last value of 999,239 Carloads), last updated February 8, 2023:

Here is the same measure on a “Percent Change From Year Ago” basis, with value -1.3%:

source:  U.S. Bureau of Transportation Statistics, Rail Freight Carloads [RAILFRTCARLOADSD11], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed March 7, 2023: https://fred.stlouisfed.org/series/RAILFRTCARLOADSD11

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Motor Vehicle Retail Sales: Heavy Weight Trucks (HTRUCKSSA)

Sales of “Heavy Weight Trucks” (HTRUCKSSA) has recently been volatile. Shown below is this measure with last value of 37.498 Thousand through February 2023, last updated March 3, 2023:

Below is this measure displayed on a “Percent Change From Year Ago” basis with value -.3%:

source: U.S. Bureau of Economic Analysis, Motor Vehicle Retail Sales: Heavy Weight Trucks [HTRUCKSSA], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed March 7, 2023: https://fred.stlouisfed.org/series/HTRUCKSSA

Moving 12-Month Total Vehicle Miles Traveled (M12MTVUSM227NFWA)

An indication of transportation and mobility is the Moving 12-Month Total Vehicle Miles Traveled indicator.

Shown below is this measure (not seasonally adjusted) with last value of 3,169,435 Millions of Miles through December 2022, last updated March 2, 2023:

Below is this measure displayed on a “Percent Change From Year Ago” basis with value -1.6%:

source: U.S. Federal Highway Administration, Moving 12-Month Total Vehicle Miles Traveled [M12MTVUSM227NFWA], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed March 7, 2023: https://fred.stlouisfed.org/series/M12MTVUSM227NFWA

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Other Indicators

As mentioned previously, many other indicators discussed on this site indicate weak economic growth or economic contraction, if not outright (gravely) problematical economic conditions.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3986.37 as this post is written