Recession Watch 2013: Piger Probability Series

by: Sold At The Top

Last year, 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 with oncoming trouble.

In the latest release, the November data (there is a reporting lag) indicates that the probability of recession has declined to 0.22%, while the standout August value (that initially piqued interest in this series) has now been revised to 1.7%. It's important to note though that the point of my prior article was to highlight just the "maximum" reported values and while the latest release revises down August's 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.