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Is the Fed Flashing A Recession Sign?

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Tags Booms and BustsThe FedBusiness Cycles

02/19/2016

This little known chart (below) is the Fed's attempt to anticipate a recession in the US economy. The reading from last November is only 3.84%, but that is higher than all but 3 months when a recession did not immediately proceed.

Recession?

According to the Fed's website (FRED):

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales.

As you can see by the chart, there were false starts in early 1978 and 1979 prior to the recessions of 1980 and 1981/82. As well as a false start in September of 2005. The experts say you need 3 consecutive months about 20% to have a reliable forecast of a recession. I will keep track as the data come in.

Mark Thornton is a Senior Fellow at the Mises Institute and the book review editor of the Quarterly Journal of Austrian Economics. He has authored seven books and is a frequent guest on national radio shows.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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