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
Author Archives: Menzie Chinn
Different Recession Predictors at Different Horizons
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.
China GDP and Forecasts
Chinese GDP for q4 was released a couple weeks ago, show a resumption of growth. The IMF has upped its growth forecast (WEO), relative to October’s, by nearly a percentage point (y/y). Nonetheless, the level of GDP will match roughly what was expected back in April’s report.
IMF WEO on US GDP
The IMF’s World Economic Outlook January update is out, with some slight upward revisions to world output projection growth for 2023, and more so to US and China. Here’s the US projection.
Term Spread Recession Forecasts for January 2024
Plain vanilla probit models indicate a high probability of recession, especially using the 10yr-3mo spread:
Data Sources: A Compendium [Updated]
For students in my courses, some useful data links.
The Cyclically Adjusted Federal Budget Balance
Just a reminder – the budget balance is endogenous (as long as one believes in a fiscal multiplier).
Personal Consumption Expenditures and Inflation – Services vs. Goods
In this Marketplace piece (with Justin Ho), one of the main points is the disjuncture between the evolution of consumption and inflation rate for services vs. all else. Here’re some pictures.
Instantaneous PCE Inflation and Competitors
Based upon the working paper by Jan Eeckhout (UPF Barcelona), here’s the PCE inflation rate up to December:
GDP, GDP+, and GDO(?) for Q4
According to some aggregate measure, there was a slowdown in 2022H1, but GDP+ says not.