New MIT Study Shows Elevated Risk of Recession in Next Six Months
February 5, 2020
Most economists have softened on the likelihood of an impending recession, but a new research project from MIT has raised the probability. Researchers have used scientific methods to develop a new index based on four economic factors to gauge the likelihood of a recession. As of November 2019, the index was at 76 percent, which translates to a 70 percent chance of a recession within six months.
The index is based on a methodology originally used to analyze human skull shapes. Rather than head shapes, the researchers based the index on four factors: nonfarm payrolls, the slope of the yield curve, stock market returns, and industrial production. They then measure how the current relationship between these factors compare to historical readings.
Looking at data going back to 1916, the researchers have found that every time their index topped 70 percent, there was a 70 percent chance of a recession in the next six months.