A New Index of the
Business Cycle

We introduce a new index that synthesizes economic data to forecast the relative likelihood of recession versus high growth: As of January 2020, it indicates a more than 70-percent chance of recession in the next six months.

February 2020

Is the US economy on the precipice of recession?

The economy goes through periods of sickness and good health. But to judge its condition at any point in time, we must rely on a collection of economic indicator values — the equivalent of vital signs. We introduce the KKT index, which measures the probability of economic recession (or robust growth) on a scale of 0 to 1. Our index is more efficient than other leading indicators, because it accounts for statistical patterns of co-movement in variables, in addition to their levels. Our index closely predicts the actual probability that a recession occurs in the next six months, and it currently indicates that recession is substantially more likely than robust growth.