Fintech executive, writer, math geek, and investment systems developer. Founder and CEO of Altruist and Founder of FormulaFolios.

Recession Probability Update - September 2012

Each month I calculate the strength of the US economy using a math based model I call RPA (Recession Probability Analytics). When the number rises above 50 it means the US economy is in the bottom 50% of all economic conditions relative to it history. While far from perfect, the model has had an uncanny ability to correlate (negatively) with stock market returns. In other words, when the model moves above 50 the S&P 500 has fallen over 25% and when it is below 50 the S&P 500 has risen nearly 15%.  I began publishing the model in November of 2007.

Here’s the full history of RPA from inception:

[table id=3 /]

RPA (Recession Probability) fell slightly this month, just barely dropping below our warning threshold of 50.  In a nutshell this just means that the economy is average - right at the 50th percentile of all measured economic data.

Key headwinds affecting RPA are:

  • Continually low Consumer Confidence
  • Above Average Initial Jobless Claims (unemployment)

On the positive side we have:

  • Slight increase in Retail Sales
  • Slight increase in Real Estate Values

While I always advocate for more conservative, balanced investing approaches - with RPA hovering around 50, now is a reasonable time to be a touch more conservative than normal.

Chat soon,

Jason Wenk

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