Recession Probabilities for June 2025

Probabilities have peaked, using a standard spread model.

Here is an updated assessment of recession probabilities (for 12 months ahead), including data through June 2024, and assuming no recession has arrived as of July 2024.

Figure 1: Probit estimated recession probabilities for 12 months ahead, using 10yr-3mo spread and 3 month rate (blue), 10yr-3mo spread, 3 mo rate, and debt-service-ratio for private nonfinancial sector (tan), and 10yr-3mo spread, 3 mo rate, debt-service-ratio for private nonfinancial sector, and foreign term spread (green). Sample for estimation 1985M03-2024M06. NBER defined peak-to-trough recession dates shaded gray. Source: Author’s calculations, and NBER.

The pseudo-R2 for the debt-service ratio augmented specification, and that including the foreign term spread as well as debt-service ratio, are 0.56 vs. 0.58.

The forecasted probabilities for July 2024 range from 60% (term spread, short rate) to 20% (term spread, short rate, debt-service ratio).

The declining probabilities for the debt-service augmented models rely on the declining pace of increase, which I’ve extrapolated dynamically for the first six months of 2024.

Figure 2: Debt-service ratios for nonfinancial private sector (black), dynamically forecasted (tan), both in %. 2024Q1-Q2 is estimated using interest rates (see here). NBER defined peak-to-trough recession dates shaded gray. Source: BIS, Dora Fan Xia, NBER, and author’s calculations.