Recession Risk 38/100 — August 5, 2026

Recession Risk Score: 38/100 — MODERATE (+4 vs 30 days ago)

Today’s Recession Risk Score is 38/100 (MODERATE), up +4 points versus 30 days ago (34 → 38). The signal remains “not imminent,” because the highest-weight real-time triggers (notably the Sahm Rule) are still clearly untriggered and high-frequency labor stress remains subdued. But the score is creeping higher because consumer fragility and housing weakness are no longer isolated soft spots—they’re becoming the marginal swing factors if hiring momentum slips. In short: slow growth + thin household buffer is the current macro mix, and it doesn’t take much to tip sentiment into a self-fulfilling slowdown.

Score Trend — Last 30 Days

Over the last 30 days ( 2026-07-06 → 2026-08-05 ), the score rose from 34 to 38 (+4). The path wasn’t a smooth grind higher: readings oscillated between 34 (min) and 44 (max), with an average of 37 across 30 samples. That range is important—we’re not in a stable low-risk regime, but we’re also not seeing persistent follow-through to the upside.

The shape looks like range-trading with episodic spikes, rather than an accelerating recession setup. The late-window behavior underscores that: the last 10 readings alternate between 34 and 38, with a single spike to 44 on 2026-08-01 before snapping back. This pattern is consistent with a macro backdrop where markets and credit stay calm, while real-economy and consumer indicators remain fragile enough to periodically lift the composite risk score when a data point disappoints or a shock (oil/geopolitics) flares.

Key Drivers

1. Real-time recession trigger remains untriggered (Sahm Rule = 0.07, SAFE)

   • The Sahm Rule is still nowhere near 0.50, signaling no unemployment-driven recession dynamic yet.
   • This is the single biggest reason the risk band stays MODERATE rather than moving toward high risk.

2. High-frequency labor remains firm (initial jobless claims = 197k, SAFE)

   • 197,000 initial claims for the week ending July 25, 2026 keeps layoffs historically low and inconsistent with recessionary labor stress. (apnews.com)
   • The key forward-looking point is trajectory: your tripwire framework (mid-200k+ sustained) remains intact, but it has not been breached.

3. Financial conditions remain loose; credit is not pricing stress (NFCI ≈ -0.55, SAFE; HY OAS ~2.8%, SAFE)

   • The Chicago Fed NFCI at roughly -0.552 (week ending July 17, 2026) indicates loose conditions, not tightening. (fred.stlouisfed.org)
   • The ICE BofA US High Yield OAS remains tight (~2.8%) and was recently updated in late July, consistent with low immediate default fear. (fred.stlouisfed.org)
   • Macro implication: absent a spread shock, credit is not the transmission channel for recession in the next 90 days.

4. Yield curve re-steepening reduces near-term odds (2s10s positive, WATCH)

   • With 2s10s positive (your tracker: 0.43), the classic inversion regime warning has eased.
   • However, the curve is still flagged WATCH in your system (and moved lower over the last week), so the message is: less bad than inversion, not “all-clear.”

5. Growth has slowed, but not collapsed (Q2 2026 real GDP = 1.5% SAAR, WATCH)

   • The BEA-reported Q2 pace came in at 1.5% annualized, a “slow growth” print rather than a contraction. (apnews.com)
   • Composition matters: consumer spending was stronger (per reporting), while trade/inventories acted as drags—consistent with “underlying demand OK, but momentum uneven.” (apnews.com)

6. Consumer cushion looks thin (Savings rate = 2.7%, DANGER; UMich sentiment = 49.5, DANGER)

   • A 2.7% savings rate (DANGER) plus 49.5 consumer sentiment implies households are highly shock-sensitive—to layoffs, gasoline, rates, or geopolitics.
   • This is why recession risk can rise even with low claims: if the labor market rolls over, the consumer may not absorb it.

Category Breakdown

• Primary Indicators: 3 safe / 5 watch / 1 danger
  Broadly stable, but with enough WATCH signals (unemployment ticking up, quits moderating) to justify the higher score.

• Secondary Indicators: 2 safe / 0 watch / 1 danger
  Secondary signals still lean constructive overall, but the “1 danger” is a reminder that non-core fragilities persist.

• Housing & Construction: 0 safe / 1 watch / 1 danger
  Housing is the clearest traditional weak pocket: building permits (WARNING) and softer starts keep the category skewed negative.

• Business Activity: 2 safe / 1 watch / 0 danger
  Business activity is not flashing recession—this is consistent with the recent manufacturing rebound narrative in the news flow. (axios.com)

• Consumer Credit Stress: 1 safe / 2 watch / 1 danger
  Stress is contained but rising at the margin (delinquencies, debt service), which aligns with the “thin buffer” consumer story.

• Market Signals: 7 safe / 2 watch / 5 danger
  This is a bifurcated picture: indices/VIX look calm, but valuation-style dangers (e.g., NASDAQ/GDP) keep the category from confirming a clean soft-landing.

• Liquidity: 0 safe / 1 watch / 2 danger
  Liquidity looks less “abundant,” highlighted by the depletion in ON RRP—an important background condition if volatility returns.

• Real-Time / High-Frequency: 0 safe / 1 watch / 1 danger
  High-frequency reads are mixed: claims are fine, but consumer and leading labor (temp help) remain problematic.

Biggest Movers

1. NY Fed Recession Probability (4.6%): +112.5% (7D)
   Mechanically a huge % move off a low base; directionally confirmatory (worsening) but still low in level, so not a regime shift by itself.

2. ON RRP Facility ($2B): -91.0% (7D)
   Confirmatory (worsening risk) from a liquidity standpoint—less cash parked at the Fed can mean a thinner buffer if funding markets tighten.

3. Yield Curve (2s10s) (0.43): -14.8% (7D)
   Mixed: still positive (better than inversion), but the weekly move is confirmatory for caution given it’s a shift toward less steepening.

4. VIX (16.0): -7.7% (7D)
   Contradictory (improving)—markets are not expressing recession fear; this reduces near-term “accident risk” from forced deleveraging.

5. Consumer Sentiment (49.5): -6.6% (7D)
   Confirmatory (worsening): sentiment deterioration supports the idea that the consumer is the weak link, even if spending hasn’t cracked yet.

90-Day Indicator Trends

Your 90-day history window (as provided) shows a macro story of stable-to-improving “hard” conditions alongside persistently weak “soft” and leading labor/housing signals.

Industrial production (now 102.6, SAFE)

• 90-day baseline in early May was ~101.8 (WATCH), stepping up to ~102.5 (SAFE) by mid-May and holding there in the history provided.
• Directionally: improving/expanding, supportive of “no imminent recession.”

Yield curve (2s10s, now 0.43 WATCH)

• In early May: ~0.49, then improved to ~0.54 (SAFE), and later eased back toward ~0.43–0.46 (WATCH) by late May in your history.
• Interpretation: curve is positive but not accelerating; it’s not warning like an inversion, but it’s also not a strong growth endorsement.

Consumer sentiment (now 49.5, DANGER)

• Early May sat around 53.3 (DANGER), then fell to ~49.8 (DANGER) by late May and remains depressed now.
• Trend: downshift and still crisis-level pessimism—this is the clearest “soft data” recession risk contributor.

Housing (starts and permits: slowing/weak)

• Starts slipped from ~1502k (SAFE) to ~1465k (WATCH) in late May; permits bounced briefly to ~1442k (WATCH) in your history but today sit lower-trend (WARNING).
• Housing remains a rate-sensitive drag, and it matters because it often leads the cycle.

Credit spreads (HY OAS: tight)

• Your history shows HY OAS oscillating but generally tightening from ~320 bps toward the mid-270s by late May, and your current read remains tight.
• That’s a powerful anti-recession signal: markets aren’t pricing broad stress.

Liquidity (ON RRP: collapsing)

• The ON RRP series in your history swings wildly (including large temporary jumps), but the key “now” message is: it’s effectively depleted, consistent with today’s WARNING and the “biggest mover” list.
• This doesn’t cause recession by itself, but it can amplify shocks if something breaks elsewhere.

Consumer balance sheet pressure (savings rate + delinquencies)

• Savings rate fell from ~3.6% (WARNING) in the history to 2.7% (DANGER) now—an important deterioration in “shock absorption.”
• Credit-card delinquency is elevated (~2.9% WATCH), reinforcing the late-cycle stress theme.

Bottom line from the 90-day lens: the economy isn’t rolling over in hard activity yet, but the consumer buffer has worsened, housing remains soft, and leading labor (temp help) stays in DANGER—which is exactly the mix that produces moderate risk with fat tails.

Stock Screener Signals

Today’s quant flags cluster heavily in “value dividend” names (ARCC, AIG, BBY, FNF, HMC, T, LTM, BCE) with a smaller sleeve of oversold growth (CHTR, TLK). The macro message from that mix is defensive carry + selective mean reversion, not aggressive cyclical risk-on.

Two interpretations stand out:

• Income/defensive preference remains a core trade. When the screener persistently finds “value dividend” opportunities, it often reflects a market that wants cash flow and perceived balance-sheet resilience—a positioning stance consistent with moderate recession risk even while indexes print highs.
• Oversold growth flags suggest dispersion, not broad risk aversion. CHTR (RSI 28) and TLK (RSI 30) being flagged implies investors are punishing specific growth/levered stories while keeping overall index volatility low—again, consistent with calm surface conditions and pockets of stress underneath.

One caution: the listed yields look obviously non-economic (e.g., triple-digit yields), which likely indicates a data normalization issue in the screener feed. Treat the factor labels (value/dividend vs oversold growth) as the primary signal, not the literal yield values.

Latest Economic Developments

1) The Fed stayed on hold (July 29, 2026) amid inflation sensitivity and internal dissent.
The FOMC kept the policy rate at 3.50%–3.75% at its July 29, 2026 decision, with reporting highlighting internal dissent and ongoing inflation concern. (axios.com) This matters for recession risk because “higher-for-longer” keeps pressure on housing and rate-sensitive consumers—while the hold itself reduces immediate policy-tightening accident risk.

2) GDP confirmed a slow-growth regime, not contraction.
Q2 real GDP was reported at 1.5% SAAR, widely described as sluggish, with inflation concerns still present in coverage. (apnews.com) The key recession-risk takeaway is that the U.S. is still expanding, but growth is slow enough that a labor-market wobble could quickly change the narrative.

3) Jobless claims remain historically low.
Initial claims rose to 197,000 (week ending July 25, 2026), still consistent with a labor market that is not shedding workers aggressively. (apnews.com) This is the strongest near-term rebuttal to recession calls.

4) Markets are acting like the expansion continues (record highs, low volatility) as oil eases.
U.S. stocks pushed to records on August 4, 2026, supported by easing oil and falling Treasury yields. (apnews.com) The 10-year yield reportedly fell to about 4.62% from ~4.70% the prior day, a tailwind for financial conditions. (apnews.com)

5) Manufacturing narrative is improving, but not universally demand-driven.
Recent coverage notes manufacturing and construction looking better than they did during the tightening phase, but also flags weak orders in some customer segments. (axios.com) That mix is consistent with our composite: better “hard” activity doesn’t fully offset consumer fragility and leading labor softness.

Near-Term Outlook (Next 30 Days)

The next 30 days are likely to keep the score in the mid-to-high 30s unless we see either (a) a labor-market inflection or (b) a financial-conditions shock. The highest-probability path is continued slow growth with elevated sensitivity to a few releases.

Key catalysts and calendar items:

• July Employment Situation (BLS) — Friday, August 7, 2026 (8:30 a.m. ET).
  This is the major near-term gate. Market previews expect the unemployment rate around 4.2%. (kiplinger.com) A surprise rise in unemployment (or weak payrolls paired with negative revisions) is the cleanest way to push the composite score higher quickly, because it would pull on Sahm dynamics and confidence.

• Treasury auction cycle (funding conditions / term premium).
  The Treasury’s schedule shows a 10-year note auction on Wednesday, August 12, 2026. (home.treasury.gov) Weak demand/tailing auctions can tighten financial conditions at the margin—relevant with ON RRP depleted.

• Fed communications + minutes timing.
  The Fed’s standard framework releases minutes three weeks after the decision; for the July 29 decision that points to mid-August. (federalreserve.gov) If minutes emphasize inflation upside risk, markets could reprice rate cuts and re-tighten conditions.

Score implications (next 30 days):

• Score likely stable to slightly higher if consumer stress indicators keep deteriorating and housing remains soft.
• Downside (lower risk score) requires: claims staying sub-200k, unemployment stabilizing, and some recovery in sentiment/savings—or at least stabilization.

Long-Term Outlook (3-6 Months)

Over a 3–6 month horizon (into late 2026), the U.S. outlook remains fragile expansion: recession is not the base case, but the distribution is skewed by consumer vulnerability and late-cycle labor-leading indicators.

Three structural points dominate:

1. The consumer is the macro fulcrum.
   With the savings rate at 2.7% (DANGER) and sentiment at 49.5 (DANGER), households have less capacity to absorb shocks. If unemployment drifts up and wage growth cools, spending can downshift quickly—turning “slow growth” into something worse.

2. Credit markets are calm—until they’re not.
   Tight HY spreads and loose NFCI are currently strong stabilizers. But because they’re tight, they can move asymmetrically if earnings weaken or refinancing conditions worsen. The tell will be whether HY OAS can remain in the ~high-200s vs. a jump into the 350–450 bps zone.

3. Housing remains the classic lagged-drain channel.
   Permits/starts weakness signals ongoing pressure in a sector that often leads broader cyclical slowdowns. If the 10-year yield remains in the mid-4s (as recent reporting suggests) (apnews.com), mortgage rates likely remain restrictive enough to keep housing from becoming a growth engine.

Historical parallel (pattern, not prophecy): this resembles late-cycle “soft landing attempts” where labor holds up longer than confidence, and the recession call becomes wrong—until unemployment accelerates and the narrative flips quickly. Your two tripwires (claims regime change + Sahm acceleration) are exactly the right ones for this phase.

What to Watch

Labor tripwires (highest priority)

• Initial claims: sustained move into the mid-200k+ range (not a one-week blip).
• Sahm Rule: acceleration toward 0.50 from 0.07.

Credit / financial conditions

• HY OAS: watch for a break above ~350 bps as an early “stress pricing” shift.
• NFCI: move from ~ -0.55 toward 0.0 would signal tightening. (fred.stlouisfed.org)

Consumer fragility

• UMich sentiment: sustained prints below ~50 reinforce recession sensitivity. (data.sca.isr.umich.edu)
• Savings rate: any further fall below 2.7% increases shock vulnerability.

Housing

• Building permits: continued weakness below the recent ~1.37M neighborhood reinforces a rate-sensitive slowdown channel.

Markets as a confirming/contradicting signal

• VIX: a regime shift above the low-teens/mid-teens zone would be an early warning of tightening risk appetite.
• Equities vs. growth: indexes at highs with deteriorating consumer/labor-leading signals is a classic divergence—watch whether equities begin to confirm the softer macro.

Sources

• apnews.com
• apnews.com
• apnews.com
• apnews.com
• axios.com
• axios.com
• axios.com
• atlanticfed.org
• bea.gov
• chicagofed.org
• conference-board.org
• data.sca.isr.umich.edu
• dol.gov
• fred.stlouisfed.org
• fred.stlouisfed.org
• federalreserve.gov
• home.treasury.gov
• kiplinger.com
• kiplinger.com