70% Chance Of Recession In Next Six Months (According To MIT and State Street Study)

According to a new study by MIT and State Street, there is a 70% chance of recession in next six months.

The researchers created an index comprised of four factors and then used the Mahalanobis distance — a measure initially used to analyze human skulls — to determine how current market conditions compare to prior recessions.

106374307-1580919329973gettyimages-1060041694

Using this principle, the researchers analyzed four market factors — industrial production, nonfarm payrolls, stock market return and the slope of the yield curve — on a monthly basis. They then measured how the current relationship between the four metrics compares to historical readings.

This recession measure is at odds with other recession probability forecasts which forecast a recession in the next twelve months at only 28% or less.

bloombergrec

Recession is defined as two consecutive  quarters of negative GDP growth.  Well, it is possible that the coronavirus will damage China GDP and maybe US GDP, but the MIT/State Street study is based on Industrial Production, Non-farm payrolls, the stock market and the yield curve slope. Only the yield curve slope (orange line) and Industrial Production (yellow dashed line) are showing recession-like trends. 

mitstate

Unless of course, MIT/State Street are saying there is a stock market bubble that will burst.

Here is a visualization of the impending recession and Mahalanobis skull measure.

recessionskull

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.