One of the interesting things about the current debate about whether or not we’re going to be in trouble is the multitude of indicators that different people are looking at – with no legitimate reason to choose one over the other. See this list of people in the recession camp, here.
That’s why I found this (pre-pandemic) systematic comparison of predictive index content, by David Kelley of interest. The key figure is reproduced below.
The Conference Board’s Leading Economic Index is leading on very short horizons. A literal reading of the August reading shows that we are in a period of recession. That said, the 10yr-Fed funds spread is one of the components of the index, and one of the main trends in the past six months. If one doubts this spread, one may doubt this reading (other main drivers have been expectations of business conditions, and ISM new orders).
The 10yr-3mo spread (used in this post) is pretty good at the end of the year.
From the conclusion:
The results of this article show that over the next year or more, the distribution of long-term Treasury yields has been the most accurate “predictor” of recessions. That said, leading indicators have been better than individual leading indicators or financial data at predicting a near-term recession. The ROC threshold indicators developed here have also performed well as predictors of near-term recessions because they are also leading indicators that effectively combine information on inputs to provide a more accurate estimate of future economic activity.
Be aware of these predictions. They are not indicators of inertia (eg, Sahm’s law).
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