Recession Risk 38/100 — May 25, 2026

Recession Risk Score: 38/100 — MODERATE (-8 vs 30 days ago)

Today’s Recession Risk Score is 38/100 (MODERATE), down 8 points versus 30 days ago (46 → 38). The near-term recession setup still lacks the classic “hard triggers”: labor-market stress remains contained, financial conditions are loose, and credit spreads are tight. But the risk distribution is getting uglier—sentiment has cratered and the Fed’s reaction function is drifting more hawkish in the presence of an energy-driven inflation impulse. Net: base case is still slowdown (soft-growth / stagflation tilt), not an imminent contraction, but the left tail is meaningfully fatter than it was a month ago.

Score Trend — Last 30 Days

Over the last 30 days (2026-04-25 → 2026-05-25), the score fell from 46 to 38 (Δ -8), with a range of 33–47 and an average of 38 across 24 samples. The path wasn’t a straight line: risk mean-reverted lower after peaking near 47, then spent most of the last two weeks stabilizing in the mid-30s before today’s jump to 38.

The last 10 readings show that “stable-lower risk” regime clearly: 34, 34, 33, 34, 33, 36, 34, 34, 34, 38. The takeaway from the shape is important: this is not an accelerating recession signal, but rather a cooling of the acute stress narrative—followed by a policy/energy-risk repricing late in the window. Today’s uptick looks less like demand collapsing and more like inflation + geopolitics reintroducing tightening risk.

Key Drivers

Here are the six biggest drivers behind today’s 38/100 reading:

1. Labor trigger remains firmly “off”

   • Sahm Rule: 0.13 (SAFE), far below the 0.50 recession trigger.
   • Initial claims: 209k (week ending May 16, 2026)—consistent with low layoff intensity and no broad labor break. (barrons.com)

2. Financial conditions are still loose (no systemic squeeze)

   • Chicago Fed NFCI: -0.52 (SAFE), which is loose, not restrictive—argues against an imminent credit-driven contraction.

3. Credit spreads remain tight (stress not propagating through capital markets)

   • High Yield OAS ~278 bps (SAFE) (as of May 21, 2026), historically inconsistent with a recession that’s about to start in the next quarter.

4. Yield curve has normalized/steepened—reducing the “classic inversion” signal

   • 2s10s: +0.43 (WATCH) and 2s30s: +1.02 (WATCH). This is not the classic deeply-inverted configuration that tends to precede recession—though steepening can also occur ahead of cuts if growth deteriorates later.

5. Consumer psychology is flashing “crisis,” even if behavior hasn’t broken yet

   • University of Michigan final May 2026 sentiment: 44.8, a dramatic collapse from April’s 49.8 and an extreme low that raises risk of demand fragility if job security perceptions weaken. (sca.isr.umich.edu)
   • This matters because sentiment can become self-fulfilling via big-ticket deferral (autos/housing/discretionary services), especially if gasoline and headline inflation remain elevated.

6. Fed reaction function: more hawkish optionality (growth-shock risk via policy)

   • April 28–29, 2026 FOMC minutes emphasize inflation risks tied to energy and supply disruptions, with participants explicitly noting risk inflation takes longer to return to 2%. (federalreserve.gov)
   • In a world where inflation persistence rises while growth slows, the “hold → hike” path becomes more plausible—raising recession odds via policy error rather than private-sector leverage.

Category Breakdown

• Primary Indicators (3 safe / 5 watch / 1 danger): Labor is mostly holding (Sahm SAFE; claims SAFE), but temp help (DANGER) and a ticking-up unemployment rate (WATCH) keep the primary set from clearing.
• Secondary Indicators (2 safe / 0 watch / 1 danger): Secondary signals are mixed; the danger print suggests some forward fragility despite otherwise stable conditions.
• Housing & Construction (0 safe / 2 watch / 0 danger): Permits and starts are both WATCH—not collapsing, but consistent with rate sensitivity and slowing momentum.
• Business Activity (2 safe / 1 watch / 0 danger): Still broadly stable (industrial production SAFE; profits SAFE), but not accelerating.
• Consumer Credit Stress (0 safe / 3 watch / 1 danger): This is quietly worsening—delinquencies, debt service, and savings cushion are flashing late-cycle vulnerability.
• Market Signals (7 safe / 2 watch / 5 danger): Equities are near highs and volatility is low (SAFE), but valuation/ratio signals (especially NASDAQ/GDP) embed bubble-like asymmetry.
• Liquidity (0 safe / 1 watch / 2 danger): Liquidity is a meaningful watchpoint—ON RRP depletion/instability can amplify rate volatility.
• Real-Time / High-Frequency (0 safe / 1 watch / 1 danger): High-frequency confirms “not recession now,” but freight weakness (DANGER) is a clear goods-economy warning.

Biggest Movers

Top 5 indicators by |7-day % change|:

1. ON RRP Facility ($965M): +5191.0% (7D) — Contradictory / noisy. This looks like a liquidity plumbing swing (base effects from near-zero levels). Treat as a volatility amplifier rather than a clean recession confirmation.
2. Bank Unrealized Losses ($5155B): -90.3% (7D) — Contradictory (improving) on paper, but the magnitude suggests measurement/regime discontinuity (not a normal economic week-to-week move). Use cautiously.
3. NY Fed Recession Probability (3.5%): +63.9% (7D) — Confirmatory (worsening), but from a low base; the level still says “low risk,” yet the direction says risk premium is creeping in.
4. GDP Growth (QoQ ann.) (2.0%): -50.0% (7D) — Confirmatory (worsening); growth expectations have clearly softened.
5. Personal Savings Rate (3.6%): +25.0% (7D) — Contradictory (improving) if true, but note today’s reading still implies a thin household buffer.

90-Day Indicator Trends

Even with limited history shown for some series, the direction of travel across the last ~90 days is clear: labor is steady, rate-sensitive sectors are softening, and “risk-of-policy-tightening” is rising.

Rates / Curve

• 2s10s drifted from ~0.61 (Feb 24) to ~0.52 (Mar 18) in the history block (still positive), while today’s spot is +0.43. That’s a modest flattening over time—less “recession inversion,” more “late-cycle tightness without break.”
• 2s30s moved from ~1.27 (Feb 24) down to ~1.12–1.17 (mid-March) and sits 1.02 today—continued long-end skepticism about long-run growth/inflation tradeoffs.

Labor

• Initial claims stayed tightly range-bound around 206–213k in late Feb through mid-March; today’s 209k is consistent with a market where firms are not broadly cutting. (haverproducts.com)
• Unemployment rate in the history block is 4.3% → 4.4% by mid-March and 4.3% today (your dashboard). Net: drift, not spike.
• Temp help fell from about 2480k to 2447k in March and is 2485k (DANGER) today—still a yellow-to-red leading indicator for labor demand, consistent with “slowdown” even if layoffs remain low.

Consumer / Demand Psychology

• UMich sentiment in the history block shows 56.4 through March, but the May final is 44.8—a sharp downshift into extreme pessimism. (sca.isr.umich.edu)
• This is the clearest 90-day deterioration: even if spending data hasn’t cracked yet, pessimism + inflation expectations is the classic setup for caution and substitution away from discretionary categories.

Credit / Financial Conditions

• HY OAS in late Feb to mid-March ranged roughly 297–320 bps; today’s ~278 bps implies tighter spreads versus that window—markets are not pricing broad default stress.
• NFCI moved from about -0.57 to -0.51 in late Feb–mid-March—still loose. That reduces near-term recession odds.

Markets / Risk Appetite

• Equity indices in the history block (Feb–Mar) were lower than today’s levels (your dashboard shows S&P 7473, NASDAQ 26344, DJIA 50580). That’s a strong wealth-effect tailwind, but it also increases valuation downside convexity if rates reprice upward.

Stock Screener Signals

Today’s quant flags cluster into two regimes: (1) high-yield “value dividend” defensives and (2) a small pocket of “oversold growth.” The list is dominated by financials/telecom/insurers/BizDev credit and a couple of non-US cyclicals—suggesting the market is simultaneously seeking carry and looking for idiosyncratic rebounds.

• The “value dividend” bucket (e.g., ARCC, AIG, BBY, FNF, T, BCE, HMC, LTM) is consistent with late-cycle positioning: investors want cash flow and payout while remaining wary of duration-sensitive multiple compression. In macro terms, this aligns with slow growth + sticky inflation risk—a regime where nominal cash yield is prized.
• The “oversold growth” flags (CHTR, TLK) imply selective mean-reversion hunts in names that have already absorbed a lot of bad news (RSI ~28–30). That’s not a clean recession tell by itself; it often appears in range-bound macro where broad indices hold up but dispersion rises.

One caution: several displayed yields look mechanically distorted (e.g., triple/quadruple-digit yields), which often reflects data artifacts (special dividends, trailing-period quirks). The macro signal here is not “dividends are exploding,” it’s investor preference for perceived durability and payout in a higher-volatility inflation/policy environment.

Latest Economic Developments

Three developments from the last few days materially shape the risk narrative:

1. Consumer sentiment collapsed to 44.8 (final May 2026)

   • The University of Michigan final print shows sentiment at 44.8, down from 49.8 in April; reports attribute the decline to gasoline prices and geopolitical tensions, with inflation expectations also rising. (sca.isr.umich.edu)
   • Macro implication: if sentiment weakness spills into actual behavior, the economy can shift quickly from “resilient spending” to precautionary slowdown, especially with low savings.

2. Jobless claims remain low (209k), reinforcing “no imminent labor break”

   • Claims fell to 209,000 for the week ending May 16, 2026, while continuing claims were around 1.78 million—a steady-to-healthy labor-market signature. (barrons.com)
   • Macro implication: as long as claims stay anchored, recession within 90 days remains less likely; the labor market is typically the final domino.

3. FOMC minutes emphasize energy/supply-driven inflation risks

   • The Fed minutes (April 28–29, 2026) highlight that the Middle East conflict and oil curve dynamics raised near-term inflation compensation, and many participants flagged risk inflation takes longer to return to 2%. (federalreserve.gov)
   • Macro implication: the Fed is not simply waiting for disinflation; it is actively weighing scenarios where inflation persistence could justify tighter policy—raising policy reaction risk into a slowing-growth backdrop.

Near-Term Outlook (Next 30 Days)

The next month is about two clocks running simultaneously:

• Clock #1: Labor deterioration (slow and measurable). Weekly claims remain the fastest clean read. A stable 205–220k range keeps the score anchored; a sustained move toward 240k+ would change the tone quickly. Continuing claims trending higher (beyond weekly noise) would be the next confirmation.
• Clock #2: Inflation/energy and Fed language (fast and narrative-driven). The key risk is an energy-driven headline impulse that pulls inflation expectations up, making the Fed more willing to signal hike optionality.

Catalysts to watch in the next 30 days:

• June 12, 2026: Preliminary June UMich sentiment (and inflation expectations). (sca.isr.umich.edu)
• June FOMC (June 16–17): Any statement shift toward a more two-sided or tightening bias would raise recession tail risk.
• Next CPI/PCE prints: if core remains sticky while energy pressures persist, the market will increasingly price growth shock risk via policy.

Base case for the score: range-bound MODERATE (mid-30s to low-40s) unless labor breaks or credit spreads widen.

Long-Term Outlook (3-6 Months)

Three-to-six months out, the macro picture looks like a contest between late-cycle resilience and shock transmission:

• Resilience side: Loose financial conditions (NFCI negative), tight HY spreads, and still-low claims are not recessionary. If energy prices stabilize and inflation expectations cool, the Fed can plausibly hold steady—allowing growth to drift slower without contracting.
• Shock side: The combination of (a) collapsed sentiment, (b) low savings cushion, and (c) a Fed that is openly focused on inflation persistence creates a regime where a policy-induced accident becomes the dominant recession pathway. Even without private-credit stress, an inflation shock that forces tighter policy can hit housing, discretionary spending, and capex quickly.

Historically, recessions that arrive “late” often do so when a stable labor market suddenly breaks—frequently after a tightening impulse or an external shock that compresses real incomes. Right now, the economy looks more like a slowdown that could tip than one already tipping.

What to Watch

Hard thresholds (if crossed, risk likely rises):

• Sahm Rule: move toward 0.30+ (today 0.13) as an early acceleration sign; 0.50 is the formal trigger.
• Initial claims: sustained >240k (vs 209k) and rising 4-week average.
• Continuing claims: a persistent uptrend (not a one-week bump).
• HY OAS: widening decisively >350 bps from ~278 bps would signal credit stress propagation.
• NFCI: moving toward 0.0 (tightening) from -0.52.

Narrative catalysts (can move markets and policy expectations fast):

• Any clear escalation/de-escalation around Hormuz and crude supply routes.
• Fed communication indicating less tolerance for inflation overshoots (minutes already lean this way). (federalreserve.gov)
• Inflation expectations in UMich (the Fed watches this closely). (wsj.com)

Sources

No data available for this window.