Leading Probability of a US Recession

This leading probability index of US recessions has been developed in 2005, concluding a two year research on leading indicators, the US business cycle and links with financial markets. This is a 'quasi real-time ' model which detected the post-war US recessions with an average (resp. median) real-time lead of 9 (resp. 7) months. The leading recession index is based upon US non-financial time series, non subject to significant revisions. The model is built on a markov-switching detection principle ''à la Hamilton''. Estimates are produced with MSVARLIB on a monthly sample starting in february 1960.

Recession probability update - April 2009

In April 2009, the leading probability of a recession fell from 4% to 2%, a four year low. Preliminary estimates indicate that the coincident probability of a recession in March was unchanged at 100%.

Latest report:

April 2009 , (Release, May 2009)

Note : new updates may be released on this website with a varying timing, but real-time estimates are reserved for proprietary use. A signal needs to be persistent to launch a recession call. Historical results based on quasi real-time vintages can be found below.

An average lead of 9 months on the post-war US recessions

How should the filtered probability be interpreted?

Following Hamilton, a probability rising above 50% is likely to announce a recession. Here are the leads based upon this conservative criterion related to the following recessions 1970 (6), 1974 (4), 1980 (11), 1982 (7), 1990 (14), 2000 (7), 2007 (14). Note that we may suspect that the model also detects the 1960 recession far in advance (at least 2 months, but the lead may be downward biased because of the lack of available data). The model offers an average lead of 9 months and a median lead of 7 months, on the NBER datations.

Click here, for a 49 year long review of the US business cycle with this index.

In practice, a rising and persistent filtered probability (at least 3 consecutive hikes above a 30% threshold) has been robust enough to detect past incoming recessions. This has notably been the case since early 2007. In August 2008, we released an upgraded model more able to disentangle the change in the US business cycle that occurred in the mid 80's. Since then, the US economy had faced rather shallow, but lingering recessions and not so easily identifiable as they had been since 1960. The new signal delivered a less equivocal message about the probability that a protracted recession should have started in December 2007, as confirmed in 2008 by the NBER...

The model has produced only one false signal in 1966-1967, corresponding to the credit crunch, that some economists consider close to a recession, see for instance Chauvet M. (1998). "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching", International Economic Review, vol. 39. Interestingly, a rising probability persisting above 5% is a short-leading indicator of more minor slowdowns such as (1962, 1968, 1973, 1978, 1984, 1995 and 1998). The probability has been a reliable measure how persistent, pervasive and pronounced is a slowdown to degenerate into recessions. For further information on research and references about recession and business cycles modelling, you may refer to some personal working papers and programs and to ressources on Business Cycle Economics and Econometrics.

Estimations are conducted every year and probabilities are calculated out-of samples. (Present sample estimate: 1960/2 - 2008/1). Because series are non subject to major revision, there is no significant "vintage effect". Some minor differences may arise because models are estimated every year and probabilities are calculated out-of samples. An enhanced version of the model has been introduced in early 2008, using a two-month averaged signal rather thant a one-month signal to increase its readability.


This model is proprietary, copyrighted 2005-2008 by Benoît BELLONE, all rights reserved. No further information will be provided about its design and its updates, except those presented on this website. Note that Benoît Bellone takes no responsibility for any use of the information delivered on his website, which remains entirely at the reader's risk.



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