US Recession Indicators

Economy has improved in February but the Worst is yet to come.

For the first time in more than a year, the signal coming from the U.S. real estate sector is improving. In our framework, the sector had been pricing a near-certain recession, with indicators consistently pointing to a 100% recession signal. That has now shifted. The latest February data shows a decline to 80%. This is not a trivial move. Housing is one of the most interest-rate-sensitive segments of the economy and typically leads the cycle. When it stabilizes, it tells us that financial conditions are no longer tightening at the same pace and that parts of the domestic economy are beginning to find a floor.

This improvement is consistent with the broader evolution in our recession probability model, which declined from 57% in January to 45% in February. Taken in isolation, the message is clear: the U.S. economy was, at the margin, stabilizing. But this is where timing matters.