Recession probability drops in September

Last month I reported on a relatively new recession probability indicator (… the “markov switching” series recently introduced to the Fed FRED/Blytic) that was giving a pretty clear, though preliminary, indication of probable recession.

While I noted that the series was highly revised, I pointed out that even taking into account the revisions, the series was giving a recession signal since using just the "maximum" reported values (values that had been all been revised lower) the reporting 20% probability was very unusual and typically associated to oncoming trouble.

In the latest release of the data we find that not only has the September (... there is a lag) value come in at a relatively low level of 2.94% probability of recession, the August number has now been revised down from 19.6% to 3.8%.

It's important to note though that the point of my prior post was to highlight just the "maximum" reported values and while the latest release revises down the 19.6% and reports an additional low probability for the latest month, it makes no difference... the fact remains that this series has NOT given such a significant over estimate of recession without there being a probable recession ahead.

Now clearly, there could always be a first time... this is just estimated data... but the prior 19.6% reported figure clearly argues for following this series very closely in the coming months.