Recession Risk

The Recession Risk gauge answers "how close is the U.S. economy to a recession right now?" — low, medium, or high. It blends indicators across the labor, rates, credit and housing channels (jobless claims, the excess bond premium, Sahm Rule, yield curve, financial conditions, new-home supply). Each input is risk-aligned so "high" always means "more contractionary" regardless of whether the underlying series is high-good or high-bad. Weights were chosen so the gauge reads High during recessions and stays out of it during expansions: from 1973 it reached High in all seven NBER recessions. It can stay High for some months after a recession ends, it dipped back to Medium for part of the 1990 and 2001 recessions, and it gave one false alarm in mid-expansion (September 2002). Initial Claims, the excess bond premium and the Sahm Rule carry the most weight (4×), with the yield curve and financial conditions at 2×. The excess bond premium is averaged over its latest three months, so a one-month credit spike cannot tip the gauge on its own. FRED's smoothed recession probability is deliberately excluded: its history is revised to fit recessions after the fact, so it would flatter the record. Valuation models are excluded too: multiples sat above the 97th percentile continuously from 2017, contributing a fixed offset rather than recession signal.