Recession Risk 38/100 — August 11, 2026

Recession Risk Score: 38/100 — MODERATE (+0 vs 30 days ago)

Today’s Recession Risk Score is 38/100 (MODERATE), unchanged vs 30 days ago. The big picture remains “late-cycle slowdown” rather than an imminent recession: the Sahm Rule is still nowhere near trigger, financial conditions are still loose, and credit spreads remain tight. But the July labor-market downshift (including the headline payroll contraction) and multiple cyclical “canaries” (temp help, freight, sentiment, savings) keep downside risks asymmetric. Net: the score is stable, but the margin for error is thinning.

Score Trend — Last 30 Days

Over the last 30 days (2026-07-12 → 2026-08-11), the score started at 38 and ended at 38 (Δ = 0), with a range of 34–44 and an average of 37. That range matters: it tells us the system is reacting to short bursts of stress, but repeatedly reverting back toward the high-30s.

The recent shape looks mean-reverting with intermittent “risk spikes” rather than a clean uptrend. In the last 10 readings, we saw two sharp dips to 34 (Aug 3 and Aug 6), a brief pop to 42 (Aug 10), and then a return to 38 today. That pattern is consistent with an economy where the highest-weight recession triggers (claims-driven labor deterioration) are not firing, even as leading/cyclical indicators and valuation-sensitive market internals periodically flash risk.

Key Drivers

1. Labor-market trigger dashboard still says “not recession,” but the direction is worse

   • Sahm Rule: SAFE at -0.03 in your tracker; public series through June 2026 ~0.07pp vs 0.50pp trigger.
   • Initial jobless claims: 199K (SAFE) — still consistent with low-layoff conditions; the Labor Department’s weekly print is still historically low. (apnews.com)
   • Counterweight: the July 2026 jobs report showed -23K payrolls with unemployment at 4.1%, partly helped by labor-force participation falling—a classic “softening masked by exits” dynamic. (axios.com)

2. Yield-curve regime has improved (less near-term recession signal)

   • 2s10s: +0.47 (WATCH) — steepening after inversion and now positive.
   • Mechanically, this reduces the probability of an “imminent” recession signal versus an inversion regime, but it doesn’t eliminate risk: curves can re-steepen because growth is improving or because the front-end is pricing future cuts into a slowdown. In the current mix, labor weakening makes the second interpretation more relevant.

3. Financial conditions are still loose—supportive of risk assets, inconsistent with immediate recession

   • Chicago Fed NFCI: -0.53 (SAFE) — still clearly “easy.” (Loose conditions reduce near-term credit stress transmission risk.) (fred.stlouisfed.org)
   • This is reinforced by HY OAS: 271 bps (SAFE) in your tracker: still tight enough to argue the credit channel isn’t breaking (yet).

4. Leading growth: not collapsing, but losing altitude

   • Conference Board LEI: June -0.2% m/m (your note) and the Conference Board confirms the June decline to 99.1. (conference-board.org)
   • GDP growth: 1.5% (WATCH) and GDPNow: 1.8% (WATCH) point to sub-trend momentum.
   • ISM manufacturing (June): 53.3 remains expansionary at the headline level, but the “good news” is narrower than it looks: employment components have been weak even while headline PMI stays >50. (ismworld.org)

5. Consumer fragility is the clearest macro vulnerability

   • UMich sentiment: 49.5 (DANGER) — crisis-level pessimism in your tracker.
   • Personal savings rate: 2.7% (DANGER) — consumers are running hot with limited buffer.
   • Card delinquencies: 2.9% (WATCH) — elevated and rising stress.
   • This is the key amplifier: if the labor market cracks even modestly, spending transmission could be fast.

Category Breakdown

• Primary Indicators: 3 safe / 5 watch / 1 danger
  Primary is still net “ok,” mainly because Sahm/SOS/claims are not flashing recession—but the balance is watch-heavy, reflecting a labor-market trend deterioration backdrop.

• Secondary Indicators: 2 safe / 0 watch / 1 danger
  Secondary is mixed but not catastrophic; this category is more “late-cycle” than “recession-now.”

• Housing & Construction: 0 safe / 1 watch / 1 danger
  Housing is yellow-to-red: permits (WARNING) and starts (WATCH) are consistent with a sector that’s no longer a growth engine.

• Business Activity: 2 safe / 1 watch / 0 danger
  Business activity is holding together; the story is slower growth rather than contraction.

• Consumer Credit Stress: 1 safe / 2 watch / 1 danger
  Consumer credit is creeping worse: delinquencies + low savings is a recession accelerant if hiring weakens further.

• Market Signals: 7 safe / 2 watch / 5 danger
  Markets are internally conflicted: headline indices are near highs and volatility is low, but valuation/ratio extremes and cyclicals (e.g., copper/gold) flash macro concern.

• Liquidity: 0 safe / 1 watch / 2 danger
  Liquidity is fragile at the margin: the ON RRP facility being essentially depleted reduces an obvious “buffer” that had absorbed cash previously.

• Real-Time / High-Frequency: 0 safe / 1 watch / 1 danger
  Real-time signals are split: claims are fine, but freight is red.

Biggest Movers

1. ON RRP Facility ($1B): +8190.2% (7D)
   Directionally this is confirmatory of tighter liquidity plumbing risk (even if the base is small and the series is noisy at low levels). It reinforces that “liquidity comfort” is fading.

2. Bank Unrealized Losses ($5155B): -90.3% (7D)
   This move is likely data noise/printing artifacts given the enormous step-change; treat as contradictory (improving) in the model, but not something to anchor macro conclusions on without corroboration.

3. Yield Curve (2s30s) (0.97): -80.4% (7D)
   A sharp flattening is confirmatory (worsening risk) if driven by long-end growth/inflation repricing down. It’s also consistent with markets leaning toward “slower ahead.”

4. NY Fed Recession Probability (4.8%): +80.0% (7D)
   Confirmatory (worsening risk) in direction, though the level remains low. This is more “risk rising from very low” than “recession imminent.”

5. Freight Transportation Index (-1.3): -66.7% (7D)
   Confirmatory (worsening risk). Freight is one of the cleaner cyclical tells for the goods economy; persistent weakness aligns with the “late-cycle downshift” narrative.

90-Day Indicator Trends

Across the 90-day window provided, the overarching pattern is slowdown without the classic recession trigger activation.

• Labor triggers (still calm, but watch the slope)

  • Initial claims have been remarkably stable: roughly 200K–215K across the May-to-early-June sample. That stability is why the score won’t “break out” higher unless claims start trending up for several weeks.
  • Sahm Rule sits around 0.13 in the May–June window (SAFE) and your current tracker shows -0.03—still nowhere near trigger.

• Rates/curve (supportive, but interpret carefully)

  • 2s10s has been persistently positive in the sample (roughly 0.42–0.54), consistent with your current +0.47 reading—supportive relative to inversion regimes.

• Consumer and cyclicals (deteriorating and already “red”)

  • UMich sentiment fell from ~53.3 to ~49.8 in late May and remains depressed; your current 49.5 is consistent with persistent pessimism.
  • Personal savings rate shows the sharpest deterioration: 3.6% → 2.6% (late May/early June), and your current 2.7% remains dangerously low. That’s an important structural fragility signal.
  • Freight remains danger throughout, with a further downgrade (from 1.5 to 0.5 in the provided sample, and now -1.3 today). Direction: worse.

• Financial conditions/credit (still “good,” but the first wobble matters)

  • HY spreads were tight in the high-270s/low-280s, with a jump to 320 bps on May 31 in the sample (watch). Your current 271 bps suggests the stress didn’t persist—but that late-May jump is a reminder that spreads can gap wider quickly if labor data keeps weakening.
  • NFCI stayed around -0.52 to -0.51 in the sample—still clearly easy; consistent with today’s -0.53.

• Equities/valuations (risk-on levels + macro-warning internals)

  • S&P 500 climbed from ~7401 (May 13) to ~7600 (June 2) in the sample; today’s 7758 continues that trajectory.
  • S&P P/E (22x) and NASDAQ P/E (30x) are elevated (WATCH), and NASDAQ/GDP remains DANGER—this is not a recession signal by itself, but it increases the probability that any macro shock transmits into tighter conditions via a risk-asset drawdown.

Stock Screener Signals

Today’s quant flags are dominated by “value dividend” names (ARCC, AIG, BBY, FNF, HMC, T, LTM, BCE) plus a couple of oversold growth signals (CHTR, TLK). The factor message is important: the market is still willing to hold risk (indices near highs), but positioning is quietly gravitating toward cash-flow and valuation discipline, which often happens when investors sense growth is late-cycle.

Two interpretations stand out:

• Defensive carry and balance-sheet preference. The clustering in dividend/value suggests investors want income + perceived resilience rather than pure beta. In late-cycle slowdowns, that’s consistent with “moderate recession risk” rather than “no risk.”
• Selective mean reversion in idiosyncratic losers. Oversold growth flags (e.g., CHTR RSI 28, TLK RSI 30) read more like tactical bounce candidates than a broad “risk-on acceleration.” This aligns with the score’s mean-reversion pattern: markets are not pricing a deep recession, but are also not behaving like early-cycle acceleration.

A note on the extreme yields shown (e.g., ARCC “1002%”): treat these as data artifacts from the screener feed rather than literal forward yields. The macro takeaway is the factor tilt (value/dividend), not the exact yield prints.

Latest Economic Developments

• Fed policy: hold, with at least one dissent. On July 29, 2026, the FOMC maintained the target range at 3.50%–3.75%, with Logan dissenting in favor of a 25 bp hike. (federalreserve.gov)
  Interpretation: policy is not “emergency-easing,” which is consistent with no near-term recession trigger. But the presence of a hawkish dissent also means the Fed isn’t fully convinced inflation risk is dead—raising the bar for aggressive cuts if growth slows.

• Labor market: the July print is the headline macro shock. Multiple outlets reported -23,000 payrolls in July with unemployment 4.1%, helped by falling participation. (axios.com)
  Interpretation: this is the kind of report that can flip business sentiment quickly, even if claims remain low initially.

• Claims still calm. The latest weekly initial claims discussed in the press remain around 199,000—still historically low. (apnews.com)
  Interpretation: until claims and continued claims start trending higher, recession models that overweight labor triggers will stay moderate.

• This week’s key macro catalyst: inflation and retail sales. Markets are looking to July CPI (scheduled Wednesday, Aug 12, 2026) and July retail sales (scheduled Friday that week) as the next big confirmation on whether the economy is slowing “cleanly” or sliding into demand weakness. (apnews.com)

Near-Term Outlook (Next 30 Days)

Base case for the next month: growth slows, recession risk stays moderate, but the score becomes more sensitive to labor/credit data because consumers have less buffer.

Catalysts most likely to move the score (up or down):

• Inflation prints (CPI on Aug 12): a benign CPI keeps the Fed on hold and supports risk assets; an upside surprise risks tightening financial conditions through rates and credit.
• Retail sales (mid-August): with savings low, a weak retail sales print would be an early “demand break” signal that pushes the score toward the mid-40s.
• Weekly jobless claims trend: the single most important real-time confirmation. A move from ~200K into a sustained higher range would quickly pressure Sahm/SOS-style logic before the monthly payroll data fully reflects it.
• Credit spreads: HY OAS is still tight; a persistent widening (not a one-day blip) would be a high-conviction “risk up” confirmation.

Long-Term Outlook (3-6 Months)

Three forces dominate the 3–6 month horizon:

1. Labor-market sequencing risk. Payrolls can weaken before claims spike, but sustained downturns usually show up in claims/continued claims. Right now, the economy is in the dangerous in-between: monthly payroll momentum is wobbling, while claims remain calm. If claims turn, recession probabilities can rise quickly because consumer buffers are already low.

2. Consumer buffer depletion as an amplifier. A 2.7% savings rate is not a forecast by itself, but it is a nonlinear accelerator: it reduces the economy’s ability to absorb shocks (gas/food, rates, layoffs, credit tightening). That raises the odds that a “late-cycle slowdown” becomes a sharper consumption retrenchment.

3. Markets are priced for “no hard landing,” which increases fragility. With equities near highs and volatility low, the system is more exposed to any combination of: weaker earnings, spread widening, or a growth scare. The “danger” market ratios (NASDAQ/GDP; copper/gold) are consistent with macro anxiety under a calm surface—not a recession call, but a fragility call.

Bottom line: the most likely path is still “slow growth + periodic risk spikes,” but the tail risk of a move into the 45–60 (ELEVATED) band rises materially if (a) claims trend higher for several weeks and (b) HY spreads widen persistently.

What to Watch

Hard thresholds and event risk (next 2–6 weeks):

• Sahm Rule: any sustained move toward 0.30–0.40 would be an early warning that the labor deterioration is becoming recession-consistent (even before 0.50).
• Initial claims: watch for a multi-week trend break above the recent ~200K regime and—more importantly—whether continued claims begin to stair-step higher.
• HY OAS: a sustained move above ~350–400 bps would be a meaningful “credit channel tightening” confirmation versus noise.
• CPI (Aug 12, 2026) + Retail Sales (mid-August): inflation benign + retail stable likely keeps the score anchored in the high-30s; inflation upside + retail downside is the “worst combo” for risk.

Sources

• apnews.com
• apnews.com
• axios.com
• kiplinger.com
• kiplinger.com
• federalreserve.gov
• fred.stlouisfed.org
• conference-board.org
• ismworld.org
• fred.stlouisfed.org
• fred.stlouisfed.org