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From a February 1st post:

I use a regression of DSR growth rate on changes in AAA and 3 month Treasury yields, and 2 lags of DSR growth to forecast 2023Q3 DSR. I then obtain the following estimate of recession probability through 2024M09.

Figure 1: Probability of recession from term spread and short rate (tan), and term spread and short rate, debt-service ratio, foreign term spread (blue). NBER defined peak-to-trough recession dates shaded gray. Source: NBER, and author’s calculations.

These probability estimates are based on these series.

Figure 2: Ten year – three month Treasury term spread (blue, left scale), and long term-short term sovereign spread in rest-of-advanced economies, GDP weighted, both in % (red, left scale), and debt-service ratio for nonfinancial corporations, % (teal, right scale). Monthly DSR linearly interpolated from quarterly data; 2023Q3 data extrapolated as described in text. NBER defined peak-to-trough recession dates shaded gray. Source: Treasury via FRED, Dallas Fed DGEI, BIS, NBER, and author’s calculations.

The probability of recession according to either specification is quite high. A simple term spread plus short rate model indicates 56% in February, while the full specification indicates only 29%. In other words, if the full specification is the more accurate (as suggested in Chinn-Ferrara), then the absence of an obvious recession onset thus far should not be taken as proof positive a recession is going to be avoided. Peak estimated probability of recession is May 2024 (65% according to full specification).

So, using data available through September 2023, the probability of recession in August using a simple spread model is still quite high, while that using a debt-service augmented model is at 51%. So, while we can see little evidence of recession in the June and July data, remember that we don’t have any data on August (and only weekly data for releases through 7/27).

For the most recent assessment (using a larger sample, and assuming no recession will be declared by NBER BCDC as starting before June 2024), see this post.

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