Recession watch: Probability of recession for June 2011, based on the yield curve, is 0.2% (see chart above, data here). Probability has been higher than 30% before every recession since 1967.
Professor Estrella is featured in this Bloomberg article "Double-Dippers Are All Wet Ignoring Yield Curve":
"The yield curve has inverted prior to all of the last seven recessions, with no false signals since 1967, according to Estrella, whose website provides all kinds of research and data for the uninitiated.
Estrella uses the monthly average spread between the 3- month Treasury bill and the 10-year Treasury note to filter out the noise. The lead time between the appearance of a negative monthly spread and recession can be anywhere from three to 18 months. In the most recent instance, the spread turned negative in July 2006, and the U.S. economy slipped into recession in December 2007, according to the National Bureau of Economic Research, the official arbiter of the business cycle.
Slowdown, yes; recession, no. That’s the message of the yield curve. Its track record is impeccable. It beats forecasters, econometric models, even the Fed, which seems to resist the inherent message in the spread. For all those double-dippers still splashing around in the pool, it’s time to get out, towel off and learn to love a slow recovery."
HT: Larry Kudlow
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