Module 3 Extra Credit Posts for Fall 2025

 October 17

There is a lot of casual talk about recessions, and the U.S. being in a recession, or going into a recession.

First off, a lot of this is nonsense. And it tends to be nonsense whether or not the economy is in bad shape or not. Some people just say this stuff to get clicks. 

Secondly, a lot of people simply don't know. But they may just say "the economy is in recession" or "we're going into recession". There's nothing wrong with having opinions and voicing them. 

Third, saying negative, pessimistic, things is just something people do. Bad news sells. Bad gossip gets a listen. Here's a link to polling information showing that for pretty much all of your lifetime people have been saying the economy isn't very good. You know what? If something goes on for 20 years, it's normal, not bad.

Having said all of those, remember what you've learned about recessions: only about 1/4 of quarters are recessions, and those tend to clump together. For example, in some 5 year period, there might be one recession of roughly 5 quarters in length, anywhere in that period. That's not a lot.

Another problem is that recessions start moderately. Remember the lecture where I said the economy is like a jagged saw? You could add that peaks are not very peaked at all. They're more like the smooth curve over the top of the roller coaster. This means that recessions have often started before we're really even sure we can feel them.

***

So here's one blogger at Political Calculations who charts out a well-know recession probability index. It's been improving for over 2 years. And the last time it signaled recession, in 2023, we didn't actually get the sustained bad period that makes a recession. When doctors do tests on patients, they call this sort of thing a false positive. They're very common with the economy. 

Here's another one from VettaFi. They focus on what they call the big 4 recession indicators. Generally you need all 4 of them showing declines (reddish pink in their tables) most months for several months in a row to have a recession. They were all green last month. 

 

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