Commentary
Debate continues as to whether recession still lies ahead. The yield curve has pointed to an 80 percent chance of recession. But, when comparing today’s situation with the comparable U.S. real GDP contraction in 2008, its timing forecast has low accuracy.
As the original literature documented, the yield curve only predicts a yes-no outcome (of recession) rather than the deepness and timing of it, if any. Moreover, the more accurate a prediction of an outcome usually leads to a less accurate prediction of its timing. And intuitively, a longer-range indicator will provide less detail about its predicted nature.
To see a broader picture with greater accuracy, other indicators can fill in the gaps. Housing indicators are an effective tool used in recession prediction. However, it may not be relevant now. Although investment is usually the key driver of economic (GDP) growth where housing is a major investment sector, the length of the housing cycle is usually a multiple of business cycles. Sometimes there are economic recessions without a housing recession (1990 was one example). Housing indicator predictions may therefore fail to produce a signal for all recessions….