Checking Up on the NY Fed Recession Index

UPDATE 10/29/09:  In the news today, statistics showing that the Q3 Gross Domestic Product (GDP) grew by 3.5% . We haven’t seen a positive GDP since Q2 2008. We haven’t seen 3.5% in a long time.  Back in February, the index predicted “almost no possibility that the economy will be in recession by the middle of this year [2009]”

If you compare that prediction to the GDP chart from today’s news, you’ll see that the freefall in the GDP abruptly arrested in Q2, and turned positive in Q3. Right on schedule.

 

 

Referring back to my Feb 22, 2009 post on the NY Fed’s Recession Probability index [link], here’s my October 8-month update on the accuracy of that index.

NY Fed’s current chart, updated in mid-October shows the recession probability has dropped to essentially zero (.0066% probability in Sept 09). This has been the prevailing trend since April ‘09.

The index projects out 12 months into the future, showing the following probabilities:

Oct-09				0.001791
Nov-09				0.001001
Dec-09				0.008243
Jan-10				0.008243
Feb-10				0.005718
Mar-10				0.00526
Apr-10				0.003739
May-10				0.001736
Jun-10				0.000607
Jul-10				0.000907
Aug-10				0.000821
Sep-10				0.001158

So, while  our index can be considered near-zero, the probability over the next year or so is one-sixth of our current index, and in alignment with the indexes shown during historical periods considered economically strong.

Good news, overall.

So, in the news today is a CNN/Money article with the title “Jobs Outlook Brightens” , in which the National Association for Business Economics presents “new evidence that the US recovery is underway.” The article cites that “the number of employers planning to hire workers over the next six months exceeded the number expecting job cuts for the first time since December 2007. And, more companies increased capital spending than cut spending – the first since October 2008. The jobless rate? That works as a trailing indicator.

The historical accuracy of this index also has been darned impeccable. Now that most of the 12-month prediction from last February has played out – right according to the projection, I might add --  I think we’ll see the US economy grind out a slow, gritty recovery over 2010.