Recession Risk 38/100 — July 26, 2026

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

Today’s Recession Risk Score is 38/100 (MODERATE), unchanged versus 30 days ago. The macro picture remains split: hard labor-market data is still inconsistent with an imminent downturn, while several late-cycle leading/sentiment signals continue to warn that growth is cooling underneath the surface. The result is a stable-but-fragile regime—more “slowdown risk” than “recession now,” but with clear trigger points (claims, credit, and hiring) that could reprice the outlook quickly.

Score Trend — Last 30 Days

The last 30 days show a range-bound risk profile: Start 38 → End 38, with a min of 33 and a max of 44 (average 36). The distribution matters: we’re not grinding higher in a straight line; instead, the score has been mean-reverting, swinging on incremental data surprises rather than a single dominant shock.

The “shape” implies stabilization after a brief flare-up. The score’s local peaks likely reflect recurring worries about cooling growth (soft payrolls, leading indicators slipping) and unease in cyclical proxies (temp help, freight, sentiment). Meanwhile, the score repeatedly snaps back as claims, financial conditions, and credit spreads remain calm—an important counterweight that keeps recession risk from compounding.

Over the last 10 readings (34–38 range with repeated 34s and 38s), the pattern looks like a market-and-data ecosystem that is highly sensitive to marginal labor signals, but not yet seeing the confirming deterioration that typically precedes a recession call.

Key Drivers

1. Labor-market “hard data” remains recession-inconsistent

   • Initial jobless claims: 187k (week ending July 18, 2026); 4-week avg ~207.5k—exceptionally low by historical standards and not what you see heading into recession. (apnews.com)
   • June unemployment rate: 4.2%, still near cycle lows even if the direction of travel is worth monitoring. (bls.gov)

2. Sahm Rule stays safely below trigger

   • Your read ~0.07, far below the 0.50 recession trigger. This remains one of the cleanest “no immediate recession” signals in the dashboard, and it aligns with low claims/insured unemployment.

3. Curve normalization reduces “inversion shock,” but does not eliminate slowdown risk

   • 2s10s ~+0.36: a re-steepening curve generally reduces near-term recession odds relative to an inversion phase. But in late-cycle environments, a re-steepening can also occur because the market expects easing—so we treat it as risk-reducing near-term, not risk-clearing.

4. Credit remains calm—no forced deleveraging signal

   • High-yield OAS ~2.85% on July 22, 2026: spreads remain tight, signaling low immediate default stress and easy-ish marginal financing. (fred.stlouisfed.org)
   • Chicago Fed NFCI ~-0.55: still consistent with loose financial conditions, not crisis conditions. (fred.stlouisfed.org)

5. Growth is cooling and the leading indicators are not improving

   • June payrolls +57k—a clear downshift from earlier trend and a credible warning that hiring demand is cooling. (bls.gov)
   • Atlanta Fed GDPNow for 2026:Q2 ~+1.7% as of July 17: below trend growth, consistent with a late-cycle deceleration. (atlantafed.org)
   • Conference Board LEI: -0.2% in June to 99.1: deterioration is modest, but still points to forward momentum weakening, not strengthening. (conference-board.org)

6. Cyclical under-the-hood warnings persist (employment composition + sentiment)

   • Temporary Help Services: DANGER in your tracker—this is a classic early-cycle-to-late-cycle inflection category, and the direction is consistent with firms de-risking labor demand at the margin.
   • Consumer sentiment: 44.8 (crisis-level)—depressed enough to suppress discretionary spending if it bleeds into actual behavior. (This 44.8 reading appears in May 2026 on FRED; your dashboard treats it as “today’s” level.) (fred.stlouisfed.org)

Category Breakdown

• Primary Indicators: 3 safe / 4 watch / 2 danger
  The headline read is mixed: labor “hard” metrics hold up, but growth momentum indicators keep enough “watch/danger” on the board to prevent a benign signal.

• Secondary Indicators: 2 safe / 0 watch / 1 danger
  Secondary data isn’t screaming recession, but the single danger suggests late-cycle fragility remains present.

• Housing & Construction: 0 safe / 1 watch / 1 danger
  Housing is still a rate-sensitive drag: permits (warning) and starts (watch) imply housing isn’t accelerating into a new growth leg.

• Business Activity: 2 safe / 1 watch / 0 danger
  Business activity is holding up on the surface (no danger flags), but the watch reading suggests a slowdown, not a re-acceleration.

• Consumer Credit Stress: 0 safe / 3 watch / 1 danger
  Household balance sheets look stretched at the margin: delinquency and debt-service are “watch,” and low savings is a meaningful late-cycle vulnerability.

• Market Signals: 7 safe / 2 watch / 5 danger
  Markets are sending a barbell: headline equity levels are safe, but several valuation/ratio and cyclicality proxies are danger—classic late-cycle “pricing perfection” risk.

• Liquidity: 0 safe / 1 watch / 2 danger
  Liquidity is a key swing factor. With the ON RRP near depletion in your framework, the system becomes more sensitive to shocks and funding volatility.

• Real-Time / High-Frequency: 0 safe / 1 watch / 1 danger
  The real-time set is not clean: low claims are supportive, but the danger flag shows the instant-read economy is not uniformly healthy.

Biggest Movers

1. ON RRP Facility ($675M): -68.9% over 7D
   Confirmatory worsening for liquidity: less “cash parked” can mean more cash in markets, but it also reduces the buffer and can increase sensitivity to funding stress (especially if bill supply/market plumbing tightens).

2. NY Fed Recession Probability (5.5%): -45.6% over 7D
   Contradictory improving move: model-implied recession odds eased materially, consistent with curve normalization and stable credit.

3. NASDAQ / GDP Ratio (0.7838): +37.4% over 7D
   Confirmatory worsening from a macro-risk perspective: sharp valuation stretching raises the risk that financial conditions could tighten abruptly if equities reprice.

4. S&P 500 / GDP Ratio (0.2326): +16.7% over 7D
   Confirmatory worsening: reinforces the “asset prices outrunning the macro” narrative—fine until earnings/labor cracks force a reset.

5. Yield Curve (2s10s) (0.36): +12.8% over 7D
   Contradictory improving near-term recession signal: steepening generally reduces the classic inversion-recession warning.

90-Day Indicator Trends

Your 90-day history (as provided) shows a key theme: labor hard data and financial conditions remain stable, while late-cycle cyclicals and consumer balance-sheet cushions look weak. The recession score stays moderate because the “confirming leg” (claims + credit widening + broad job loss) is not here yet.

Labor & recession triggers

• Initial claims stayed in a low band (e.g., 214k late April, dipping to 189k early May, and ~200–211k mid/late May in the history). That’s a remarkably stable, low-layoff environment.
• Sahm Rule in the history improves from 0.20 (late April/early May) to 0.13 (mid/late May). Directionally, that’s the opposite of what a recession setup looks like.

Financial conditions & credit

• Credit spreads (HY OAS) tightened from ~320 bps readings in late April/early May down to the high-270s/280s by mid-to-late May in your history—risk markets were not pricing stress.
• NFCI moved slightly more supportive (from around -0.50 late April to roughly -0.52 in May), consistent with easy financial conditions rather than the tightening you’d typically see pre-recession.

Growth & activity

• GDP growth (watch) in your history oscillates around ~2.0–2.1% (after a weaker 0.5% print in late April entries), consistent with slow growth rather than contraction.
• Industrial production improved from ~101.8 in late April/early May to ~102.5 by mid-May—incrementally supportive.

Consumer & household resilience

• Personal savings rate drops from 4.0% (late April) to 3.6% (early/mid May in your history) and sits there—this is a structural vulnerability: households have less buffer if labor softens.
• Credit-card delinquency ~2.9% stays elevated and sticky, not exploding—but not improving either.

Housing

• Building permits drift down (e.g., 1372k → 1363k).
• Housing starts sit around ~1502k in the history you provided—stable but not accelerating.

Bottom line from the 90-day view: The system is still in a “late-cycle slowdown” posture, not a “recession spiral.” For the risk score to break sustainably higher, you typically need claims/continued claims to trend up for weeks and/or credit spreads to widen meaningfully—neither is present in the data we can verify right now.

Stock Screener Signals

Today’s quant flags cluster into two buckets: (1) value/dividend defensives and (2) selective oversold growth. That mix is consistent with a market that is not pricing imminent recession, but is increasingly seeking cash-flow durability and idiosyncratic rebounds rather than broad cyclical beta.

The value dividend list (e.g., AIG, BBY, FNF, HMC, T, BCE, ARCC) suggests the market is rewarding:

• Lower multiples (single-digit P/Es are common here),
• Income orientation, and
• Balance-sheet/cash-flow stories that can survive slower nominal growth.

Meanwhile, oversold growth flags (e.g., CHTR RSI ~28, TLK RSI ~30) hint at mean-reversion positioning rather than exuberant expansion trades. In a moderate-risk macro, this pattern can persist: investors remain willing to buy growth on weakness, but the broader tone shifts toward selectivity and valuation discipline.

One caution: the yields shown in the screener (several triple-digit yields) look mechanically distorted (often a data artifact from special dividends, ADR quirks, or bad denominator timing). The macro takeaway is still useful—value + income bias—but those yield magnitudes should not be interpreted literally.

Latest Economic Developments

Labor market: The most recession-relevant “latest” development is still that initial jobless claims fell to 187,000 for the week ending July 18 and the four-week average fell to 207,500—a clear signal that layoffs remain historically low. (apnews.com) This single data point heavily anchors the near-term outlook: recessions don’t typically start with claims at multi-decade lows.

Growth nowcasting: The Atlanta Fed GDPNow estimate for 2026:Q2 real GDP growth is 1.7% (SAAR) as of July 17, unchanged from July 16. (atlantafed.org) That’s consistent with a downshift from stronger quarters but not a contraction call.

Leading indicators: The Conference Board LEI fell 0.2% in June to 99.1, following a small increase in May. (conference-board.org) This supports the “slowdown risk” argument: forward momentum is soft enough to keep recession probabilities elevated, even while the labor market remains intact.

Manufacturing: ISM Manufacturing PMI was 53.3 in June (still expansion), while the employment index remained contractionary at 49.7. (ismworld.org) This divergence is classic late-cycle behavior: output can hold up, but hiring intentions soften first.

Fed and policy: Markets are focused on the July 28–29, 2026 FOMC meeting (statement and press conference July 29). (kiplinger.com) Recent public commentary also signals a low tolerance for above-target inflation and an internal debate risk (hawkish voices laying groundwork for tighter policy if inflation doesn’t cooperate). (investing.com)

Near-Term Outlook (Next 30 Days)

Base case for the next month remains slow growth with contained recession risk, but the distribution of outcomes is widening because late-cycle labor cooling can shift quickly.

Likely drivers (next 30 days):

• FOMC (July 28–29, 2026): The key is not just the decision, but whether the Fed signals renewed tightening bias or validates a “hold/monitor” stance as growth cools. (kiplinger.com)
• Jobs data (early August 2026): After June payrolls of +57k, the next print will matter disproportionately. A second weak payroll report plus rising unemployment would move risk higher fast. (bls.gov)
• ISM July manufacturing (Aug 3 release time noted by ISM): Watch whether the PMI stays >50 and whether employment improves from sub-50. (ismworld.org)

Score implications: With claims this low and HY spreads tight, the score is likely to hold in the mid-to-high 30s unless we see (a) a sustained uptick in claims/continued claims, or (b) abrupt credit widening, or (c) a clear break in hiring.

Long-Term Outlook (3-6 Months)

The 3–6 month window is where the current “split screen” can resolve into either a soft landing or a classic late-cycle rollover.

Why the soft-landing path is plausible:

• Claims are extremely low, and financial conditions are loose—conditions that typically support continued (if slower) expansion. (apnews.com)
• Manufacturing is still in expansion by headline PMI terms. (ismworld.org)

Why recession risk remains non-trivial:

• The labor market can pivot quickly once hiring slows: temp help declines, quits fall, and then claims rise. Your dashboard is already flagging Temporary Help (DANGER) and Quits (WARNING)—two “early” labor-market signals.
• The LEI is still drifting down, consistent with late-cycle fragility rather than re-acceleration. (conference-board.org)
• Valuation/financial stability risks (e.g., extreme NASDAQ/GDP, large unrealized bank losses in your tracker) increase the odds that a shock transmits into the real economy via tighter credit availability.

Historical parallel (mechanism, not a one-for-one): Late cycles often look exactly like this—labor hard data stays strong until it doesn’t, while leading indicators and sentiment deteriorate earlier. The key difference between “slowdown” and “recession” is whether deterioration broadens into claims, credit, and real income.

What to Watch

Labor (highest signal-to-noise):

• Initial claims: Watch for a persistent uptrend (several weeks) rather than a one-off rise.
• Continued claims: A sustained move higher would validate that job losers are taking longer to find work. (AP reports “just under 1.8 million” for the prior week in the latest release.) (apnews.com)
• Sahm Rule: Any sustained move toward 0.30+ would be a meaningful warning; 0.50 is the trigger.

Credit & financial conditions:

• HY OAS: A move from ~2.85% toward the mid-3s/high-3s would be an early tightening signal; a rapid spike would be a regime change. (fred.stlouisfed.org)
• NFCI: A decisive shift toward zero (or positive) would indicate tightening conditions. (fred.stlouisfed.org)

Growth & business cycle:

• GDPNow updates: If the nowcast breaks materially below ~1% SAAR, the slowdown narrative strengthens. (atlantafed.org)
• LEI: Another few consecutive monthly declines would argue that forward momentum is eroding. (conference-board.org)
• ISM employment: Remaining <50 while headline stays >50 is a classic “soft underbelly” signal. (ismworld.org)

Policy:

• FOMC July 28–29: Any hawkish surprise (or hawkish press conference) that lifts front-end yields could tighten financial conditions quickly. (kiplinger.com)

Sources

• No data available for this window.