Thursday, October 15, 2009

NY Fed Treasury Spread Model: Economic Recovery Underway, NO Chance of a Double-Dip Recession

Full history here, click to enlarge.
The New York Fed just released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through September 2009, and the Fed's recession probability forecast through September 2010 (see charts above). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (3.28% spread in September) to calculate the probability of a recession in the United States twelve months ahead.

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month. For September 2009, the recession probability is only 0.66% (2/3 of 1%) and by a year from now in September 2010 the recession probability is only .11%, or about 1/10 of one percent.

Further, the Treasury spread has been above 3% for the last five months (since May), a pattern consistent with the economic recoveries following the last two recessions. Finally, the pattern of the recession probability index so far this year (going below double-digits and declining monthly) is very similar to the pattern starting in March 2002 that signalled the end of the 2001 recession.

According to the NY Fed model, the chances of a double-dip recession this year or next year? Zero.


At 10/15/2009 3:41 PM, Blogger Unknown said...

The graph you present needs to go much farther back. As posted, we are asked to accept the predictive powers of the model based on ONE previous data point.

It would be nice to see this data going back over at least the last 5 recessions.

At 10/15/2009 3:46 PM, Blogger Mark J. Perry said...

Gunnk: If you click on the link to the Fed's website, you'll see the full series. I have also now added it to the post.

At 10/15/2009 5:15 PM, Anonymous Anonymous said...

Even with the devaluation of the dollar?

At 10/15/2009 6:03 PM, Anonymous Carrera said...

No chance.

In order to have a double-dip, you have to have a recovery first. Hasn't happened.

At 10/15/2009 7:41 PM, Blogger BMWright said...

This is most interesting. Purhaps this is just one more reason the stock market is so strong.

Now if we could only create a few jobs to help us out of these great american jobless recoveries.

At 10/16/2009 7:27 AM, Anonymous Eric H said...

Oh, the Federal Reserve said so....then it must be true...


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