Since early 2018 Intensity has provided a monthly email recession forecast outlook update. At the beginning of April 2020, Intensity’s recession forecast model predicted that the United States had entered a recession. Thus, the model has fulfilled its intended purpose, which is to answer the question: “When will the next recession start?”
In this retrospective, we look back at the model’s monthly predictions beginning in 2018, highlight notable periods, and provide context on the economic events and drivers of forecast changes over time. A graphic of the forecasts is available here: Recession Forecast Summary Chart.
January forecast: Expected recession start 15 months away (Expected range 12 to 19 months)
December forecast: Expected recession start 4 months away (Expected range 2 to 7 months)
Throughout 2018, the forecast trended towards more immediacy, reflecting a softening of the U.S. and global economies, along with the escalating trade war with China. December closed the year in dramatic fashion, with a historic drop in stock markets, a partial inversion of the yield curve, another Fed rate increase, and the beginning of a government shutdown. Accordingly, the forecast for January 2019 provided a grim outlook…
January forecast: Expected recession start 0 months away (Expected range 0 to 1 month)
December forecast: Expected recession start 2 months away (Expected range 1 to 5 months)
The forecast from the beginning of January 2019 reflected the deteriorating economic outlook by signaling a nearly immediate start to the next recession unless conditions improved. Business conditions did indeed improve throughout the first few months of 2019. The stock market had its strongest annual start since 1987 amid a better-than-expected U.S. jobs report and reassurance from the Fed that it would be patient with interest rate hikes. The forecast steadied after mid-year, balancing somewhat mixed signals about the state of the economy from an inverted yield curve and a booming stock market.
January forecast: Expected recession start 3 months away (Expected range 2 to 6 months)
April forecast: Recession begins
The year started strongly, with improvements in trade relations between the United States and China, better-than-expected payroll numbers for January, and strong earnings pushing stock indices to historic highs by mid-February. The ensuing crash was swift as COVID-19’s rapid spread caused a global pandemic, leading to significant Fed rate cuts and a massive stimulus package. The dramatic reversal of economic conditions was reflected in Intensity’s March and April recession forecasts, the latter of which indicated that the United States had entered a recession with certainty. Prior to the recession start, the forecast remained relatively stable for approximately one year, demonstrating the accuracy of the model and its ability to indicate significant near-term recession risk.
About the Model
Intensity’s recession forecast model predicted the likelihood of a recession starting in each month over a 5-year horizon. The model’s predictions can be interpreted as providing the probability of a recession starting by a certain date based upon key economic factors and machine learning algorithms. The model was updated at the beginning of each month with the latest economic data to deliver new predictions.