The Smoothed U.S. Recession Probabilities indicator measures the likelihood that the U.S. economy will experience a recession soon.
The indicator is calculated using data from four concurrent monthly reports.
- Non-farm payroll employment.
- The index of industrial production.
- Real personal income excluding transfer payments.
- Real manufacturing and trade sales.
In ThinkorSwim, you can analyze and view the U.S Recession Probabilities chart by entering the ticker symbol RECPROUSM156N.
I created a simplified version of the chart as a standalone indicator to make it easier to compare the recession data to the S&P 500 Index.
U.S. Recession Probabilities Indicator for ThinkorSwim
# Indicator Name: Smoothed U.S. Recession Probabilities (RECPROUSM156N) # Version: 1.0.0 # Developer: Melvin C. # URL: https://thinkscript101.com/us-recession-probabilities-indicator-thinkorswim/ declare lower; plot Data = close("RECPROUSM156N:FRED"); plot High_Recession = 100; plot Low_Recession = 0; Data.SetDefaultColor(Color.White); High_Recession.SetDefaultColor(Color.Red); Low_Recession.SetDefaultColor(Color.Green);
- Import the code above into ThinkorSwim.
- Set your chart to the monthly (Mo) timeframe.
- View the data along with the S&P 500 Index (SPY).
Similar to the RSI, which calculates overbought and oversold levels from 0-100, the Smoothed Recession indicator also operates similarly.
- A reading of 100 signals a recession is imminent or already happening.
- A reading at or close to 0 indicates no sign of recession.
The Smoothed U.S. Recession Probabilities indicator is now at a low level (1.22), indicating that there is little probability of a recession coming soon.
However, the indicator does not update in real-time because the economic data it uses only comes out once a month.
Historically, when the indicator displays three consecutive months of smoothed probabilities above 80%, it usually implies the beginning of a new recession.
In contrast, similar periods with probabilities below 20% have consistently served as a solid signal of asset appreciation.
I recommend this page for additional reading on the indicator.