Methodology
Signals are evaluated against historically meaningful thresholds from FRED series.
A state change is an event; the composite score weights active states and maps to
risk buckets calibrated on 1967–2026 history. Nowcast signals detect a recession
that may already be underway — they confirm onset, not forecast it.
Data is release-aware: ALFRED vintages let us distinguish "what we knew then"
from "what we know now" — backtests use as-of data, not revised history.
Composite score
score = Σ (weight × state) — watch ×0.5, warning ×1, critical ×1.5
| LOW | 0–4.99 | <15% |
| ELEVATED | 5–8.99 | ≈35–60% |
| HIGH | 9–12.99 | ≈40–65% |
| SEVERE | 13–∞ | uncertain — hist. rare |
~16%
Signals
Financial
Yield curve inversion (10Y–3M)
10Y minus 3M Treasury spread below zero — the classic leading recession signal.
Yield curve inversion (10Y–2Y)
Most-watched curve pair; corroborates the 10Y–3M signal.
Curve re-steepening
Rapid rise of 10Y–3M spread after inversion — historically clusters near recession onset.
Financial conditions (NFCI)
Chicago Fed index; positive = tighter-than-average conditions.
Financial stress (STLFSI)
St. Louis Fed stress index; positive = above-average stress.
Credit
High-yield credit spread
ICE BofA US HY option-adjusted spread; widening = default-risk repricing.
BBB corporate spread
Investment-grade credit premium; broadening of credit stress.
Bank lending standards
Net % of banks tightening C&I loan standards (SLOOS).
Housing
Building permits
New housing permits falling YoY — early housing-cycle signal.
Housing starts
New residential construction falling YoY.
Durable goods orders
New orders for durable goods falling YoY (ISM new-orders proxy).
Labor
Initial jobless claims
4-week average rising — earliest real-time labor signal.
Continued claims
Insured unemployment rising from its cycle low.
Temporary help employment
Temp staffing falling YoY — firms cut temps first.
JOLTS labor flows
Openings and quits both declining — labor demand cooling.
Composite
NY Fed recession probability
12-month recession probability from the Treasury spread probit model.
CFNAI activity index
Chicago Fed National Activity Index, 3m MA below -0.7 — broad activity weakening.
Industrial production
Industrial production falling YoY — near-coincident.
Nowcast
Sahm rule
Unemployment ≥0.5pp above 12m low — signals recession ONSET, not a forecast.
Recession probability (Chauvet–Piger)
Smoothed probability of already being in recession.
Sahm — states
Count of states whose unemployment crossed the Sahm trigger — experimental regional nowcast.
Data & revisions
All indicators come from FRED (St. Louis Fed) public series — each signal links to its source.
Recession dating follows the NBER chronology. Publication lags are modeled explicitly, and
ALFRED vintages keep an auditable record of what the data looked like at each point in time.