Recession Risk 33/100 — May 18, 2026

Recession Risk Score: 33/100 — MODERATE (-11 vs 30 days ago)

Today’s Recession Risk Score is 33/100 (MODERATE), and it has fallen meaningfully (-11 points) over the past 30 days (44 → 33). The downgrade in risk is primarily about what isn’t happening: high-frequency labor stress remains contained, financial conditions are still loose, and the yield curve is comfortably positive. That said, the score is not “low” because several forward-looking fragilities—especially consumer psychology, goods/freight, and “early-cycle labor” (temp help)—continue to flash caution.

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Score Trend — Last 30 Days

The last 30 days show a clear downshift in recession risk, with the score moving from 44 (Apr 18) to 33 (May 18), a -11 point improvement. The distribution matters: the window’s max was 47, min was 33, and the average was 41—meaning today’s reading sits at the best point of the entire month.

The shape is best described as choppy mean-reversion, followed by a late-window step-down. In the last 10 readings, the score oscillated at elevated levels (44 on May 9, May 11–12) before breaking lower (34 on May 13) and then stabilizing in the 33–34 zone (May 15–18). That stabilization is important: it suggests risk is not accelerating—but rather consolidating at a moderate level as the macro narrative shifts from “imminent downturn” to “slow growth with pockets of strain.”

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Key Drivers

1. Recession trigger remains unarmed (Sahm Rule 0.13 vs 0.50 trigger).
   The Sahm Rule at 0.13 is far below the 0.50 recession threshold, keeping near-term recession probabilities capped despite soft spots elsewhere. This is the single highest-weight “real-time” brake on risk.

2. Labor market still holding in high-frequency data (Initial Claims 211k; continuing claims 1.782M).
   Initial claims rose to 211,000 for the week ending May 9, 2026, but remain historically low and consistent with a labor market that is not shedding jobs broadly. Continuing claims increased to 1.782 million (week ending May 2), which is worth monitoring but not yet a break. (apnews.com)

3. Yield curve is decisively non-inverted (2s10s ~ +50 bps).
   A positive 2s10s spread reduces the classic “curve inversion” recession signal. This matters because curves typically invert well before recessions; the current configuration argues against an imminent downturn based on rates structure alone.

4. Leading indicators point to below-trend growth (LEI -0.6% m/m in March 2026; slowdown signal).
   The Conference Board’s LEI fell -0.6% in March 2026 (to 97.3, reversing February’s gain). Their commentary explicitly frames the signal as a slowdown over coming months, with forecast growth pulled down toward the ~1.6% y/y area for 2026. (conference-board.org)

5. Manufacturing is expanding, but jobs inside manufacturing are not (PMI 52.7 vs employment 46.4).
   The April 2026 ISM Manufacturing PMI held at 52.7 (expansion), while the Employment Index fell to 46.4 (deeper contraction). That split is consistent with “output holding up / labor cautious,” and it aligns with your separate temp-help danger flag. (ismworld.org)

6. Energy-driven inflation is a macro tax on confidence and real spending.
   April CPI rose 0.6% m/m and 3.8% y/y, with energy a dominant driver; core inflation rose 2.8% y/y. Higher energy prices compress discretionary spending and amplify sentiment fragility—especially with savings already thin. (bls.gov)

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Category Breakdown

• Primary Indicators: 4 safe / 4 watch / 1 danger
  Mixed but not recessionary: the primary “hard data + trigger” complex is leaning watch, not danger, because labor-trigger metrics remain calm even while unemployment is ticking higher.

• Secondary Indicators: 2 safe / 0 watch / 1 danger
  Secondary signals are broadly stable; the danger print here reinforces that pockets of weakness persist even as the aggregate picture holds.

• Housing & Construction: 1 safe / 0 watch / 1 danger
  Housing is split (starts okay, permits weak). This is a classic “late-cycle housing hesitation” pattern: permits tend to lead starts.

• Business Activity: 2 safe / 1 watch / 0 danger
  Business activity is not deteriorating fast enough to validate a recession call today; it’s consistent with slow expansion.

• Consumer Credit Stress: 0 safe / 3 watch / 1 danger
  This is one of the most important “moderate-risk anchors”: delinquencies and debt service are not blowing out, but the direction is unfavorable and the cushion is limited.

• Market Signals: 7 safe / 2 watch / 5 danger
  Markets are sending a contradictory message: index levels and spreads look fine, but valuation/fear ratios (and cyclicals like copper/gold) imply tail risk and fragile positioning.

• Liquidity: 0 safe / 1 watch / 2 danger
  Liquidity is a yellow-to-orange area: depleted buffers (e.g., RRP) reduce shock absorbers even if they don’t cause recessions by themselves.

• Real-Time / High-Frequency: 0 safe / 1 watch / 1 danger
  High-frequency is “calm labor, weak goods”: that mix typically points to growth cooling more than an immediate labor-led contraction.

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Biggest Movers

From the past week’s largest absolute % moves:

1. ON RRP Facility ($647M): -84.7% (7D) — Confirmatory (worsening resilience)
   A sharply depleted RRP can signal reduced excess liquidity buffers. Not a direct recession trigger, but it raises fragility if funding stress appears.

2. GDP Growth (QoQ Annualized) (2.0%): -50.0% (7D) — Confirmatory (worsening growth impulse)
   A large downshift in the tracked growth estimate supports the “below-trend expansion” story.

3. NY Fed Recession Probability (3.3%): -30.8% (7D) — Contradictory (improving)
   The model-based probability moving lower is consistent with today’s score decline and argues against imminent recession.

4. VIX (17.3): +29.0% (7D) — Confirmatory (risk rising at the margin)
   Even from low levels, a fast VIX rise is often a sign of hedging demand and nervous positioning.

5. Personal Savings Rate (3.6%): +25.0% (7D) — Contradictory (improving cushion, if sustained)
   A higher savings rate would help offset the confidence shock channel—but at 3.6%, the level still implies limited buffer.

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90-Day Indicator Trends

Your 90-day history block shows a macro environment that is stable-to-slowing, with stress concentrated outside the headline labor indicators.

Rates/curve (2s10s, 2s30s):

• 2s10s remained positive and generally drifted from about 0.62 (Feb 17) down toward the low-0.5s by mid-March—a modest flattening but still clearly non-inverted.
• 2s30s eased from ~1.25 (Feb 17) to ~1.12 (Mar 14–15), a more notable flattening at the long end, consistent with “growth expectations cooling” without near-term recession confirmation.

Labor triggers & high-frequency labor (Sahm, claims):

• Initial claims were remarkably steady: ~212k (Feb 21) to ~213k (mid-March)—tight and stable.
• Sahm Rule improved: 0.30 (late Feb/early March) → 0.27 (mid-March), moving away from the recession trigger.

Credit & financial conditions (HY OAS, NFCI, VIX):

• HY spreads hovered mostly in the high-200s/low-300s bps, with intermittent widening (e.g., ~317 bps mid-March) but not a regime change.
• Chicago Fed NFCI stayed loose and stable around -0.56 to -0.51.
• VIX showed a spike regime in early-to-mid March (peaking around ~29.5) relative to February (~19–20), which looks like a risk-off episode that did not metastasize into broader stress.

Goods/industrial/cyclicals (copper/gold; freight; manufacturing employment):

• The copper-to-gold ratio fell into danger and then stayed pinned at 0.00077 for an extended stretch (from early March onward). In practical terms, this is the market screaming “industrial caution,” and it’s one reason risk remains moderate rather than low.
• Freight deteriorated sharply (positive 1.3 → -0.5 by March 4 onward), consistent with a weak goods economy.
• Temp help fell from ~2480K to ~2447K by early March and stayed weak—an “early-cycle labor” warning that often leads payroll softness with a lag.

Consumer & balance-sheet cushion (sentiment, savings, delinquency):

• Consumer sentiment sat weak around 56.4 through the window, consistent with elevated pessimism.
• Savings rate was 3.6% for most of the window, rising to 4.5% late in the history block—improving, but from a very low base.
• Credit card delinquency was sticky around ~2.94–2.98%, a watch-level stress that is not crisis-like but directionally concerning.

Netting it out: over the past ~90 days, the macro picture looks like “labor okay, goods weak, confidence weak, financial conditions loose.” That combination most often produces slow growth and periodic market volatility—rather than an immediate recession—unless labor finally rolls over.

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Stock Screener Signals

Today’s screener is dominated by “value dividend” flags (ARCC, AIG, BBY, FNF, HMC, T, BCE, LTM) with a smaller cluster of oversold growth (CHTR, TLK). That mix typically appears when the market is expressing two beliefs at once:

1. Preference for cash flow and valuation discipline.
   Low P/E “value dividend” names screening well suggests investors are increasingly drawn to earnings durability + payout profiles, consistent with a late-cycle / slow-growth macro backdrop. This fits today’s moderate-risk regime: not panic, but a tilt toward quality income and away from “priced-for-perfection” cyclicality.

2. Selective mean-reversion in beaten-up growth.
   CHTR (RSI 28) and TLK (RSI 30) point to oversold conditions—often seen when macro uncertainty (inflation, energy, policy path) causes indiscriminate selling in certain growth/levered balance-sheet names. In a 33/100 environment, this is more consistent with rotation and dispersion than with an across-the-board recession trade.

One important operational note: the reported dividend yields in the screener (e.g., ARCC 1002%) are almost certainly data artifacts (special distributions, annualization issues, or bad fields). Treat the classification signals (value/dividend, oversold growth, RSI, P/E) as the meaningful content, not the raw yield values.

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Latest Economic Developments

Inflation re-accelerated in April, with energy as the key channel.
The BLS reported CPI +0.6% m/m in April and +3.8% y/y, while core CPI was +2.8% y/y. Energy accounted for a large share of the monthly increase—exactly the kind of shock that can tighten financial conditions indirectly by pressuring consumer purchasing power and complicating the Fed’s reaction function. (bls.gov)

Retail sales slowed but did not break.
April retail sales rose 0.5% m/m (after 1.6% in March), a moderation consistent with “higher gas costs crowding out discretionary,” but still indicative of ongoing nominal spending growth rather than contraction. (apnews.com)

Claims remain low; payroll growth is positive but not booming.
Initial jobless claims came in at 211k for the week ending May 9, and April payrolls increased +115k with unemployment unchanged at 4.3% (BLS release dated May 8, 2026). This combination supports a “slow expansion” baseline—especially given that claims tend to be among the earliest hard indicators to turn. (apnews.com)

The Fed is on hold at 3.50%–3.75%, emphasizing data dependence amid elevated uncertainty.
The Fed’s implementation note (Apr 29, 2026) confirms the target range remains 3.50% to 3.75%. With inflation hot and growth mixed, the near-term policy path likely remains “wait and see,” raising the bar for near-term easing unless labor clearly softens. (federalreserve.gov)

Markets: equities are near highs, but oil/inflation shocks are creating volatility.
Stocks pulled back on May 15, 2026, with the S&P 500 down ~1.2% that day amid oil-driven inflation nerves, even as the broader trend has held up. (apnews.com)

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Near-Term Outlook (Next 30 Days)

Base case for the next month: continued slow expansion, but higher volatility and greater sensitivity to labor + inflation surprises.

Key catalysts likely to move the score:

• Weekly jobless claims: a sustained shift above ~250k (and especially an accelerating uptrend in continuing claims) would materially lift recession risk.
• Next Employment Situation (May jobs): BLS has May employment scheduled for June 5, 2026. A downside surprise in payrolls coupled with a higher unemployment rate would move the Sahm Rule closer to watch territory. (bls.gov)
• Inflation prints / energy pass-through: with April CPI hot, markets will focus on whether energy-driven pressure bleeds into core services and inflation expectations.
• Credit tightening with lag: watch whether SLOOS tightening translates into weaker small-business hiring and consumer credit performance into early summer.

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Long-Term Outlook (3-6 Months)

The 90-day indicator mix points to a regime that is macro-stable but internally brittle:

• Stability anchors: non-inverted curve, low claims, loose NFCI, and tight HY spreads are all inconsistent with an imminent recession call.
• Brittleness channels: temp-help contraction, freight weakness, and extremely depressed copper/gold suggest the goods economy is weak and that “soft landing” outcomes rely heavily on services/labor resilience.
• Consumer vulnerability: sentiment is already at crisis-like pessimism, and the savings rate is low. That’s a dangerous combination if inflation stays sticky and labor weakens even modestly.

Historically, expansions often end not when a single leading indicator turns negative, but when multiple weak-but-manageable strains synchronize—typically via labor. For the next 3–6 months, the central question is whether today’s goods/leading/psychology weakness stays compartmentalized or spills into payrolls.

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What to Watch

Labor (highest priority)

• Initial claims: sustained >250k and rising 4-week average
• Continuing claims: persistent uptrend (look for acceleration, not one-off bumps)
• Sahm Rule: movement toward 0.30 (watch) and especially 0.50 (trigger)

Consumer

• UMich sentiment: any further deterioration from 53.3
• Savings rate: whether it can rise without a collapse in consumption
• Credit card delinquency: a move decisively above ~3% with momentum

Goods / cyclicals

• Freight index: stabilization vs continued contraction
• ISM employment: continued sub-50 prints (46.4 currently) vs rebound
• Copper/gold: whether it exits the danger regime (currently pinned low)

Policy & inflation

• CPI/core CPI: evidence that energy is contaminating broader inflation
• Fed communication: any shift from “hold” toward either renewed easing bias (growth scare) or hawkishness (inflation persistence)

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Sources

• apnews.com
• conference-board.org
• bls.gov
• federalreserve.gov
• federalreserve.gov
• bls.gov
• apnews.com
• apnews.com
• haver.com
• lpl.com