Is the U.S. in a recession now?
In this paper, Pascal Michaillat and Emmanuel Saez introduce a new recession indicator that combines vacancy and unemployment data to provide a more timely and accurate detection of recessions. The authors’ indicator takes the minimum of two separate indicators: one based on the unemployment rate and the other on the vacancy rate. This approach aims to detect recessions more quickly and robustly than existing methods, such as the Sahm rule, which only uses unemployment data. More specifically, the unemployment indicator is calculated by taking the difference between the 3-month trailing average of the unemployment rate and its minimum over the past 12 months. Similarly, the vacancy indicator is constructed using the vacancy rate’s 3-month trailing average and its maximum over the past 12 months. Finally, the minimum of these two indicators is used to identify the start of a recession.
Recession Detection Rules
Michaillat and Saez propose a two-sided rule to determine recession probability:
- If the indicator is below 0.3 percentage points (pp), a recession has not started.
- If the indicator is between 0.3 pp and 0.8 pp, a recession might have started.
- If the indicator exceeds 0.8 pp, a recession has started for sure.
Historical Performance
The new indicator has a perfect track record of identifying all recessions since 1930 without false positives or negatives. It detects recessions on average 1.4 months after they start, compared to 2.6 months for the Sahm rule.
Current Economic Context
As of July 2024, the minimum indicator is at 0.5 pp, suggesting a 40% probability that the U.S. economy is in a recession. The indicator suggests that a recession might have started as early as March 2024.
Has the Recession Started?
Authors: Pascal Michaillat, Emmanuel Saez
From: University of California, Santa Cruz, University of California, Berkeley
What are other indicators showing?
In this commentary, Menzie Chinn looks at two other weekly recession indicators, namely, the Lewis/Mertens/Stock and the Baumeister/Leiva-Leon/Sims:
This is how these indices looked like around the 2008 recession:
Looking at different data:
Chinn concludes that the data available as of August 3rd don’t paint a recessionary picture for the U.S.
High Frequency Recession Indicators
By: Menzie Chinn, University of Wisconsin, Madison
