Rising Rates, Falling Savings, Rising Deficits, Doubtful GDP: Since the yield curve inverted and warnings of “imminent recession” sounded, the Philadelphia Fed map State Coincident Indexes provided a good real-time snapshot of the state of the economy. Friday’s post may have passed, but it’s full of good surprises worth looking into.
The big picture is simple: over the last 3 months, the coincident indices for all 50 states have increased (diffusion index = 100). Last month (May 2023), the indices rose in 47 of the 50 states, were stable in 2 states (Minnesota and Rhode Island) and fell in only 1 (Wisconsin). Other states that were quite mild include New Jersey, Arkansas and Kentucky.
Ned Davis Research smashes state coincident indices into a probability chart that only shows a 1% chance that we are currently in a recession. This is not a prediction, but rather a reading of the coincident indices as an indicator of the current recession.
Recession probability model NDR: 1% probability of a recession currently
NDR via ryan derick
Noticed: The yield curve has been inverted for what seems like an eternity. Note that the 10 years minus 3 months Treasuries – the recession forecast indicator created by Duke Fuqua School of Business teacher Harvey Campbell reversed in 2019, then again briefly in 2020, then deepened once the FOMC started raising rates in 2022:
Despite its near-perfect track record of forecasting recession, the yield curve inversion is perhaps less prophetic after a decade of zero Fed Funds. Either way, it is extremely difficult to objectively look at current data and say that we are currently in a recession or soon will be.
The Joker ? To what extent is the FOMC over-tightening rates and causing a recession by its future rate hikes that are too fast/too many/too high…
Previously:
Are we in a recession? (No) (June 1, 2022)
What data appeals to the NBER recession? (September 1, 2022)
The post-normal economy (January 7, 2022)
10 bad catches in this market (May 19, 2023)
Sources:
Current state coincident index report (PDF)
Federal Reserve Bank of Philadelphia, May 2023
