Vindication

The St. Louis Fed recession probability indicator reached 20% as of August. It has not previously reached 20% without a nearly immediate recession.

Hussman and ECRI won’t be lonely voices in the wilderness much longer. What’s interesting is that the economy is now entering a stall at full power. Fiscal and monetary policy is fully expansionary and yet the economy still can’t climb. Look out below.

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Comments

  • Dwaine van Vuuren  On November 6, 2012 at 5:05 pm

    These probabilities are revised significantly month on month. Have been following these DFMS models for 18 months now. Look at the last 6 vintages to see how they jump up then are revised down again. Chauvettes model stayed at 25% plus for 3-4 months in a previous summer swoon. If you look at her probabilities now, they are at 1% You cant take a single months reading and compare it to historical revised record to make assumptions. According tot he designers of this model in email conversations I had with them “In the paper that Marcelle and I have, we argued for a recession call when the probabilities had risen above 80% for three consecutive months. This put a high premium on not calling false positives.”

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