How to Use iMarketSignals for Recession Signals

The four Recession Indicator models on iMarketSignals should provide early warnings of oncoming recessions. Historically, the prospect of an economic downturn (recession) has corresponded to declining stock prices. It is therefore prudent to reduce stock market allocations or exit the stock market prior to recessions.

Weekly Updates relevant to Recession Signals

(i) The Recession Indicator FRR2-10: This indicator is a long leading indicator, 14 month average before the recession starts, and the markets may still rise after this indicator falls below 1.0.

3/15/2019: Latest update only available to Bronze members 3/8/2019: The Forward Rate Ratio between the 2-year and 10-year U.S. Treasury yields (FRR2-10) is near last week’s level and is not signaling a recession. The FRR2-10 general trend is downwards. A description of this indicator can be found here.

(ii) The Recession Indicators BCI :  On past performance, if BCIp falls below 25 a recession may begin about 20 weeks later, markets may have peaked or are about to peak. If BCIg falls below zero a recession followed historically on average 11 weeks later, markets have peaked.

3/14/2019: Latest update only available to Bronze members 2/14/2019: The BCI at 249.2  is below last week’s 249.9, and remains below this business cycle’s peak as indicated by the BCIp at 80.3.  Also, the 6-month smoothed annualized growth BCIg at 9.5  is below last week’s 10.1.  Both BCIp and BCIg are not signaling a recession.

(iii) The Recession Indicators COMP : Similar to BCIg,  if this indicator falls below zero a recession starting a few weeks ahead is signaled by the model.

3/15/2019: Latest update only available to Bronze members 2/15/2019: Figure 3 shows the COMP down from last week’s sharply downward revised levels (15.42 down to 9.04) . No recession is indicated. COMP can be used for stock market exit timing as discussed in this article The Use of Recession Indicators in Stock Market Timing. The COMP followed the Aruoba-Diebold-Scotti Business Conditions Index’s downward revision.

(iv) The Unemployment Rate Recession Model:

The model signals the start of a recession when any one of the following three conditions occurs:

1. The short exponential moving average (EMA) of the unemployment rate (UER) rises and crosses the long EMA to the upside, and the difference between the two EMAs is at least 0.07.
2. The unemployment rate growth rate (UERg) rises above zero, while the long EMA of the unemployment rate has a positive slope, and the difference between the long EMA at that time and the long EMA 10 weeks before is greater than 0.025.
3. The 19-week rate of change of the UER is greater than 8.0%, while simultaneously the long EMA of the UER has a positive slope and the difference between the long EMA at the time and the long EMA 10 weeks earlier is greater than 0.015.

3/8/2019: To view latest update please log in 2/1/2019: The unemployment rate recession model (article link), has been updated with the February UER of 3.8%. The model does not signal a recession. Here is the link to the full update.