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Is America heading for a recession?

Masterhawk

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This Vox video explaines one method which can predict when the US will enter a recession called the yield curve. When it's going upward or straight, all is well. However, if it ever goes downward, even slightly, it's a sign that a recession is looming up ahead.



Any thoughts?
 
This is a subject which has been argued several times in these forums. The short answer is that it's just an indicator and the credit market chaos in Europe is causing a false reading. The underlying weaknesses that give rise to both an inverted curve and a recession are not seen by other measures.
 
Eventually we'll get a recession, it's part of the business cycle. You can't have 100% good years.

But will the recession hit this year? Nope.
 
Eventually we'll get a recession, it's part of the business cycle. You can't have 100% good years.

But will the recession hit this year? Nope.

I don't think it'll be nearly as bad as the 2008 recession but it seems like the trade war is taking a toll.
 
I don't think it'll be nearly as bad as the 2008 recession but it seems like the trade war is taking a toll.

But the US is still the safest bet on the planet which is what will keep up closer to anemic/stagnant than in a recession for at least a fair while now. In other words, thank God for Brexit/EU chaos.
 
Maybe I can shed some light on this issue given that I have spent the last two years mostly working on forecasting and economic modelling using large datasets.

What we usually do is we define a recession as does the NBER: we have a monthly variable available through the Federal Reserve Economic Database (FRED) which assigns a 1 to periods the NBER called a recession and a 0 to periods the NBER called expansions. Of course, we could as well come up with a different method for defining recessions and use this classification instead, but we'd be quibbling over a matter of one or two months around turning points. When you're mostly interested in forecasting 12, 18 or even 24 months ahead, that's not exactly interesting. Once you have a classification, you can compare different methods for assigning a probability of recession ahead of time. The way we do it is essentially recursive: we use data, say, up to 1990 first quarter, we train our models on it, and then use the models to forecast 1990Q2, for example. Then we add 1990Q2 to our sample, we retrain the models and then forecast 1990Q3. This way, you imitate the conditions in which you would have used the models back in the day and you can get an idea of how it will perform when the future really is unknown -- i.e. when you'll use it for real.

I know a guy who did this in a very serious manner: he used vintage datasets (economic data get revised over time, so you're cheating a bit if you use the latest release), he looked for when the NBER declared recession dates (even if you're in a recession in 2001, he does as if he didn't know because the NBER calls them with delay), etc. His models use the yield curve and he produces an entire term structure of forecasts (i.e., he forecasts 1 quarter to 8 quarters ahead). For reference, this is a paper by Kotchoni and Stevanovic.

One interesting point he and his coauthor makes is that the shape of this term structure is generally like a bowl (it's convex), but that since the 1980s it always has inverted (like a dome) prior to recessions. On his website, you can see updates in day by day for the probability of a recession:
DS_forecasts

If they are right, there should be a slowdown in 2020.
 
Bottom line: Gamblers (investors) are not a good indicator of future economic activity anymore.

The reason financial data is so useful for macroeconomic forecasting is that movements in market prices partly reflect anticipations. These prices aggregate relevant information for you. The curious thing is that it doesn't only work with financial markets. Bets placed on electoral outcomes also tend to fare better than sophisticated models based on poll data.

Your claim goes against decades of solid evidence to the contrary. Moreover, it is a bad argument, to say the least: you're using a very small sample (next year) and not even the data itself, but other forecasts...
 
A recession will happen anyway, just a natural part of the economic cycle. The question should always be what will drive the severity of the recession.
 
If the US heads into a recession, there's no ammo left to get us out. Trump spent it all on tax cuts, which have been a dismal failure beyond giving Wall Street a temporary sugar high.
 
This Vox video explaines one method which can predict when the US will enter a recession called the yield curve. When it's going upward or straight, all is well. However, if it ever goes downward, even slightly, it's a sign that a recession is looming up ahead.



Any thoughts?


Vox has been pounding this drum since the beginning. They are run by DNC retreads form the Clinton days.

Maybe it will happen, maybe it won’t, but if it does it will be mild. The markets are betting on Trump, the Chinese are praying their Commie prayers that Trump bounces so they can get back to business screwing the American workforce.
 
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