As a share of potential GDP (CBO May 2022 estimates):
Foreign term spreads in several major financial centers have inverted (you can see the yield curves here). What is the probability of a recession 12 months ahead, using the 10yr-3mo term spread, the foreign (Germany, UK, Japan, Canada) 10yr-3mo term spread, and the national Financial Conditions Index (FCI), as suggested by Ahmed and Chinn (2022)? Answer: High
Michael Kiley (FRB) has recently circulated a working paper showing that various indicators have greater predictive power at different horizons. Other papers have shown this for different term spreads, for credit spreads, foreign term spreads; in this case, Kiley shows unemployment and inflation have more predictive power at long horizons than short.
Plain vanilla probit models indicate a high probability of recession, especially using the 10yr-3mo spread:
For students in my courses, some useful data links.
Just a reminder – the budget balance is endogenous (as long as one believes in a fiscal multiplier).