An analysis modeling the NBER's recession dating methodology at the state level reveals a fractured economic landscape. As of September, states representing one-third of the nation's GDP were in or near recessionary conditions. This contrasts with the strong national headline numbers and highlights significant underlying weakness in specific regions.
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While Gross Domestic Product (GDP) measures economic output via spending, Gross Domestic Income (GDI) measures it via income. The significant gap between the two in Q3 suggests the economy's underlying strength is weaker than the headline number indicates, as an average of the two is often more accurate.
The sharp drop in the fiscal impulse represents a direct, dollar-for-dollar hit to nominal GDP that has already occurred. This indicates a recession is underway, not forthcoming. The National Bureau of Economic Analysis (NBER) will likely backdate the start of this recession to the third quarter of 2025.
The US economy is not uniform. Mastercard's real-time data reveals a persistent trend of the Southeast, particularly North and South Carolina, significantly outperforming the national average in consumer spending. In contrast, parts of the Midwest and Northeast are showing relative softness, highlighting critical regional economic divergence.
The podcast's economists assess the probability of a recession in the next year at 40-45%, significantly higher than the consensus view of 25-30%. This heightened risk is based on deteriorating labor market trends and is corroborated by Moody's own machine learning models.
The job growth diffusion index, measuring the share of industries expanding payrolls, fell to 47.6 in October. A reading below 50 has historically signaled a recession, indicating that current job gains are dangerously concentrated in just a few sectors like healthcare.
In a machine learning algorithm designed by Moody's to predict recessions, aggregate building permits (single-family and multifamily) emerged as the single most important variable. A decline in permits is a powerful signal of elevated recession risk for the entire economy.
The Sahm Rule provides a clear signal that a recession has begun: when the three-month moving average unemployment rate rises by more than 0.5 percentage points above its low from the previous year. This metric is useful for cutting through noise and identifying when a slowly weakening job market has definitively tipped into a downturn.
Despite political rhetoric about bringing manufacturing back to the US, real-time freight data shows a 30% year-over-year drop in the industrial segment. This suggests the opposite is occurring, signaling a deep recession in the nation's goods economy.
While large-cap tech props up the market, ADP employment data shows the small business sector has experienced negative job growth in six of the last seven months. This deep divergence highlights a "K-shaped" economy where monetary policy benefits large corporations at the expense of Main Street.
Large, negative revisions to economic data often occur around major economic turning points. This is because companies hit first by a downturn are more likely to delay reporting their data, which makes the initial economic reports appear stronger than reality.
