Earlier this month, Deutsche Bank warned that there’s a 60% probability of a US recession, based on the firm’s analysis of the Treasury yield curve. Neil Irwin at the NY Times wonders: “Can We Ignore the Alarm Bells the Bond Market Is Ringing?” But perhaps the better question is whether we can rely on any one signal—or model—for evaluating recession risk? No, we can’t, and fortunately we don’t have to. The one exception for this common-sense rule: combining recession-risk estimates from multiple methodologies and taking the median number as the closest thing to a single, relatively reliable measure of macro distress. On that note, allow me to introduce the Composite Recession Probability Index (CRPI).
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