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Friday, 20 September 16:39 (GMT -05:00)



Stock and commodities markets

Is Economic Decline In USA Inevitable?


The NY Fed model points out to the fact that the probability of another recession in the American economy has increased all the way up to 33%. Over the last 50 years, such signals have almost always bee followed by recessions.
 
As of early July, the likelihood of another economic recession in the United States was very close to 33%. By the way, this is the highest probability over the last 12 years. The more-than-60-year record indicates 8 such cases, and only one of them ended up with no recession.
 
The probability of an economic recession in the United States is implied by the yield spread between T-bond with different lifetime. 
 
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In the remaining 7 out of 8 cases, reaching the 30% threshold would mean an inevitable economic recession. So, what's the chance that this time the U.S. economy  is not going to hit another recession? What's the chance that even if there's an economic recession it is not going to last for 24 months or more, like in 1968?
 
The NY Fed model has never reached 50% over the last 36 years! And it's interesting to note that over that period, the American economy has seen 3 officially recorded economic declines (NBERs were announced).
 
The NY Fed model is based on the only, tough almost unfailable, indicator, which is basically an inverted yield curve indicating situations when the 3-month T-bond yield exceeds the 10-year T-bond yield. This is is exactly what we have been seeing since May, 23rd. The inverted yield curve came into existence in 2007, following a big economic decline, which later triggered a global financial crisis.
 
In the meantime, the American economy has recenty set a new record. The thing is that the continuous GDP growth has been going on since Q3 2019, which is 10 years in a row. This is the longest series since World War II, or maybe even in the entire history of the USA. Still, the economc growth in the USA has been slowing down for a couple of months.

 

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Publication date: 17 May 11:23 AM

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