Recession Update

March 22, 2019

In my blog post The Three Horsemen of the Grapepocalypse, Part 2: The Coming Recession, I included a probability distribution of when I think the next recession is coming:

 

■There is a 95% chance that we'll see a recession within the next 3 years;

■25% chance in 2019;

■40% chance in 2020;

■30% chance in 2021;

■5% chance in 2022 or later.

■My probability distribution could be shattered by sudden shifts from a wide range of disruptions from either natural or policy disasters.

 

I am updating that estimate.  At the time, the spread between the 3-month Treasury yield and the 10-year Treasury yield was 87 basis points (2.35% vs. 3.22%).  In just those 19 weeks, the curve has flattened and the spread is only 16 basis points (2.44% vs. 2.60%).

 

For that reason, I am updating my recession timing probability distribution to be more pessimistic:

 

■There is a 95% chance that we'll see a recession within the next 3 years;

■45% chance in 2019;

■35% chance in 2020;

■15% chance in 2021;

■5% chance in 2022 or later.

■My probability distribution could be shattered by sudden shifts from a wide range of disruptions from either natural or policy disasters.

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