Recession Risk 37/100 — May 7, 2026

Recession Risk Score: 37/100 — MODERATE (-12 vs 30 days ago)

Today’s Recession Risk Score is 37/100 (MODERATE), down -12 points from 30 days ago (49 → 37). The downgrade reflects a labor market that still looks tight in high-frequency data (notably claims) and a risk-on rebound in equities tied to easing near-term energy-shock fears. However, the score remains in MODERATE territory because forward-looking growth signals are mixed: soft sentiment is depressed, select labor subcomponents are rolling over, and the leading index backdrop has recently deteriorated. Net: not imminent, but tail risk persists if labor and credit crack as the energy shock works through real incomes.

Score Trend — Last 30 Days

The last 30 days show a clear mean-reverting decline in recession risk, from a start of 49 on April 7, 2026 to an end of 37 on May 7, 2026 (-12 points). Over the window, the score printed a min of 34 and a max of 49, averaging 43 across 24 samples, implying the risk regime has been cooling, not accelerating.

The shape matters: after late-April volatility (readings clustering in the mid-to-high 40s), the last two prints (38 on May 6 and 37 on May 7) suggest the model is stabilizing at a lower risk plateau. This is consistent with “late-cycle but not breaking” dynamics: labor remains intact, financial conditions are not disorderly, and equity markets are behaving as if the next macro impulse is slower growth, not a contraction shock.

Key Drivers

1. Labor market recession trigger remains unthreatening (Sahm Rule ~0.20 pp).
   The Sahm Rule—the highest-weight real-time recession signal in many frameworks—sits near 0.20 pp, well below the 0.50 pp trigger, implying unemployment hasn’t risen enough (yet) to characterize a labor-driven downturn.

2. Initial jobless claims are exceptionally low (189k for week ended April 25, released April 30).
   Claims fell to 189,000 (week ended April 25, 2026), one of the lowest readings in decades, and inconsistent with recession onset dynamics where claims typically trend higher for multiple weeks. (apnews.com)

3. Leading indicators recently deteriorated even as “nowcasts” look firm.
   The Conference Board LEI fell -0.6% in March 2026 (to 97.3), reversing February’s gain and warning that the medium-term growth impulse weakened. (conference-board.org)
   This is the core tension: coincident-ish labor and markets look okay, but forward-looking composites are flashing caution.

4. Yield curve re-steepening reduces near-term recession odds.
   Your 2s10s is now positive (+0.49%), a meaningful shift versus inversion regimes that historically correspond to elevated recession probabilities. In today’s score, this acts as a risk reducer because it suggests less restrictive marginal policy expectations and/or less growth pessimism embedded in the curve.

5. Energy-shock uncertainty is a macro wild card—risk can swing quickly.
   Oil prices fell sharply on May 6 on hopes of progress enabling flows from the Persian Gulf, boosting global equities; but gasoline prices remain sticky because retail channels work through higher-cost inventory. This creates a near-term setup where inflation pressure can persist even if crude drops, complicating Fed reaction functions and real income trajectories. (apnews.com)

Category Breakdown

Using today’s signal counts:

• Primary Indicators: 2 safe / 6 watch / 1 danger
  Primary is watch-heavy: hard data isn’t recessionary, but the balance is cautious as the system waits for confirmation from payrolls/unemployment and broader activity.

• Secondary Indicators: 2 safe / 0 watch / 1 danger
  Secondary is mostly stable, but the single danger reading reinforces the theme that select “under the hood” measures are weakening before headline prints.

• Housing & Construction: 1 safe / 0 watch / 1 danger
  Housing is split—starts look fine, but permitting is weaker, pointing to a potential pipeline softening rather than a present collapse.

• Business Activity: 2 safe / 1 watch / 0 danger
  Business activity leans constructive, consistent with PMIs staying in expansion—though the composition (especially hiring) is less clean than the headline.

• Consumer Credit Stress: 0 safe / 3 watch / 1 danger
  No “safe” signals here: delinquency and savings cushion metrics keep consumer fragility in the model, particularly if energy costs squeeze budgets.

• Market Signals: 6 safe / 4 watch / 4 danger
  Markets are bifurcated: equity levels and volatility read “safe,” while valuation/ratio and certain macro cross-asset measures read “danger,” indicating complacency risk.

• Liquidity: 0 safe / 1 watch / 2 danger
  Liquidity remains a soft spot, largely due to the drawdown dynamics around facilities and reserves, raising sensitivity to shocks.

• Real-Time / High-Frequency: 0 safe / 1 watch / 1 danger
  High-frequency is mixed: claims are strong (safe in your dashboard), but other real-time measures keep the category from clearing.

Biggest Movers

Top 5 by absolute 7‑day percent change:

1. ON RRP Facility ($80B): -64.5% (7D)
   This is contradictory (improving in “excess liquidity cushion” terms if interpreted as normalization), but can also be read as less backstop buffer depending on how cash is reallocating—still a liquidity sensitivity flag.

2. NY Fed Recession Probability (20.0%): -39.5% (7D)
   Confirmatory improvement: model-implied recession odds fell sharply week-over-week, consistent with easing near-term downturn expectations.

3. Copper-to-Gold Ratio (0.00077): -31.9% (7D)
   Confirmatory worsening: a sharp deterioration in a growth-sensitive cross-asset ratio signals industrial caution and risk-off hedging behavior.

4. Personal Savings Rate (3.6%): +25.0% (7D)
   Contradictory improvement if sustained (more household buffer). But given the broader context of high prices/energy shock, the key question is whether this is durable rebuilding or a temporary statistical bounce.

5. VIX Volatility Index (17.4): +15.8% (7D)
   Mildly confirmatory worsening: volatility rising suggests markets are paying up for protection again, though the absolute level remains relatively contained.

90-Day Indicator Trends

Your 90-day history (as provided) shows a market-and-rates backdrop that’s not deteriorating in a straight line, but rather oscillating with a tilt toward “late-cycle caution.”

Rates / Curve

• 2s10s (yield-curve-2s10s): from 0.72 (Feb 6) → 0.51 (Mar 13), a ~0.21 pp flattening across the sample, with interim resilience but a clear drift lower. Even though today’s dashboard shows +0.49, the 90‑day tape implies the curve has been compressing, not steepening, through mid-March—important because flattening can re-emerge if inflation fears keep front-end yields elevated while growth expectations soften.

• 2s30s: from 1.35 (Feb 6) → 1.12 (Mar 14) (-0.23 pp), also consistent with a late-cycle flattening tendency.

Labor / Real-time

• Initial claims: 229k (Feb 7) → 213k (Mar 14), improving by ~16k in the history window (strong). That aligns with the broader “no labor break yet” call.

• Unemployment rate: stable around 4.3% then ticked to 4.4% from Mar 8 onward in your tape. That is a directional warning, but not a recession print by itself—what matters next is whether it keeps climbing and pushes the Sahm Rule toward 0.5.

• Sahm Rule: 0.30 through early March, easing to 0.27 by Mar 8–Mar 14. That’s improving, not deteriorating, inside your window.

Credit / Financial conditions

• HY OAS (credit-spreads): 287 bps (Feb 6) → 309 bps (Mar 13), widening ~22 bps in the tape with a notable spike to 319 bps (Mar 11). That’s not recessionary blowout behavior, but it is a tightening drift worth watching—especially if energy volatility resurfaces.
• Chicago Fed NFCI: tight range -0.55 → -0.51 (still loose overall), suggesting broad financial conditions have not tightened enough to force an imminent contraction.

Equities / Risk

• S&P 500 in your history: 6932 (Feb 6) → 6632 (Mar 14) (down ~4.3%), with drawdowns and rebounds; meanwhile today’s dashboard is far above that level, implying a strong rebound since mid-March.
• VIX: 17.8 (Feb 6) → spikes into the high 20s by Mar 10, then mid‑20s into Mar 14—your history captures a stress flare. Today’s 17.4 suggests that flare has largely mean-reverted, consistent with the lower risk score.

Activity / Sentiment

• Consumer sentiment: pinned at 56.4 throughout your provided history window, but your current reading is far lower (danger) and UMich’s April 2026 final was 49.8, indicating a meaningful deterioration since the earlier plateau. (sca.isr.umich.edu)
• Temp help services: 2480K → 2447K (Feb 23 to Mar 14), a decline of about 1.3% in the history window—this is a classic “early warning” labor input that often weakens before headline payrolls.

Bottom line on the 90-day tape: labor-hard data and broad financial conditions remain non-recessionary, but credit drift + temp labor + sentiment keep the risk model from fully clearing into LOW.

Stock Screener Signals

Today’s screener is dominated by “value dividend” flags (ARCC, AIG, BBY, FNF, HMC, T, BCE) with a smaller cluster of oversold growth (CHTR, TLK) and a cyclical/emerging-market tilt (LTM). Interpreting this as positioning: the market is not pricing an imminent earnings collapse, but it is paying up for cash yield, balance-sheet durability, and “cheaper duration” within equities.

Two key takeaways:

• Defensive income bias with selective cyclicals: Names like ARCC (BDC credit exposure), T, BCE, and value-oriented financials (AIG, FNF) imply a preference for carry and valuation discipline—often seen when investors expect slower growth + still-uncertain inflation, rather than a clean re-acceleration.
• Oversold growth flags (CHTR, TLK) suggest mean-reversion hunting in pockets that have been pressured—consistent with a market that believes downside is contained but volatility shocks (energy, Fed communication, payroll surprises) can create short windows of dislocation.

One important operational note: the displayed dividend yields (some extremely high) look like data artifacts rather than actionable yield signals; directionally, however, the “value dividend” clustering still conveys a risk-managed posture.

Latest Economic Developments

Energy and markets (last 48 hours):

• On May 6, 2026, global equities rallied sharply as oil prices fell on hopes of progress toward reopening/allowing flows from the Persian Gulf/Strait of Hormuz routes; the S&P 500 surged to 7,365.12 in that session per market coverage. (apnews.com)
• Gasoline prices are likely to decline only gradually even if crude stays down, because stations are working through higher-cost inventory, keeping pressure on real disposable income in the near term. (axios.com)

Fed policy posture:

• The FOMC held the target range at 3.50%–3.75% on April 29, 2026, with implementation details confirming the stance (including the primary credit rate at 3.75%). (federalreserve.gov)
  The takeaway for recession risk isn’t “tight vs easy” in isolation—it’s that energy-driven inflation risk can delay easing, raising the bar for the “soft landing” path if headline inflation re-accelerates.

Labor and activity pulse:

• Initial claims for the week ended April 25 printed 189k (released April 30), underscoring that layoffs remain minimal. (apnews.com)
• ADP private employment for April showed +109,000 jobs, with pay growth around 4.4% y/y, pointing to continued (though not hot) hiring and still-firm wage dynamics. (prnewswire.com)
• ISM Services remained in expansion at 53.6 in April, but with commentary pointing to persistently elevated price pressures as energy/supply chain effects pass through. (ismworld.org)

Leading indicators:

• The Conference Board reported the LEI fell -0.6% in March 2026, and it also cut its growth forecast to well below 2% (1.6% y/y for 2026 in its commentary). (conference-board.org)
  This is one of the more important “yellow flags” in today’s mosaic: you can have strong claims and still see forward momentum fade.

Near-Term Outlook (Next 30 Days)

The next 30 days are likely to be driven by labor confirmation and energy-to-inflation pass-through.

What can pull the risk score lower (improve):

• May 8, 2026 Employment Situation prints a steady-to-cooling labor market (moderate payroll growth, stable unemployment near current levels, no upside wage shock). The release is scheduled for May 8. (bls.gov)
• Credit stays calm: HY spreads remain in the ~300–350 bps zone rather than trending toward a stress regime.
• Energy stabilizes lower and survey inflation expectations stop worsening, allowing the Fed’s “hold” stance to look sufficiently restrictive without needing to re-tighten.

What can push the risk score higher (worsen):

• A sequence of higher unemployment prints (not just one) that mechanically drives the Sahm Rule toward 0.5.
• A claims breakout: initial claims moving persistently above roughly the low-200k regime and continuing claims trending higher—this would be the cleanest high-frequency recession warning in your framework.
• Renewed energy disruption: crude and gasoline re-spike, forcing tighter financial conditions and squeezing real incomes simultaneously.

Long-Term Outlook (3-6 Months)

Three structural forces dominate the 3–6 month horizon:

1. Labor is the gatekeeper.
   With claims still extremely low and the Sahm Rule well below trigger, the economy is not currently behaving like it’s entering recession. The long-term risk is that hiring softness (manufacturing employment contraction signals, temp help declines) shows up with a lag in payrolls and unemployment, flipping the strongest “real-time” recession filters.

2. Leading indicators imply slower trend growth—even without recession.
   The LEI drop (-0.6% in March) argues for below-trend growth ahead. (conference-board.org)
   In practice, that tends to mean the economy is more vulnerable to shocks: policy errors, energy spikes, or a credit event can turn “slow growth” into contraction.

3. Energy shock is the wild card for both inflation and demand.
   If the Iran/Hormuz situation keeps gasoline elevated, the drag shows up as a tax on consumers while simultaneously complicating the Fed’s inflation mission. Conversely, a sustained normalization in crude can improve the soft-landing odds quickly—but gas price pass-through is slower than market pricing.

Historical parallel (pattern, not point-for-point): late-cycle episodes where hard labor data stays firm while sentiment and leading indicators sag can persist for months—until an exogenous shock or a policy/credit tightening impulse forces the labor market to adjust. Your score being MODERATE (not LOW) fits that “stable but fragile” template.

What to Watch

High-priority triggers (would move the score):

• Sahm Rule: watch for movement toward 0.35 → 0.50 (trigger zone).
• Initial claims: a sustained shift back above ~230k–250k would be an early warning; a move into the 270k+ zone would be harder to dismiss.
• Credit spreads (HY OAS): watch 350 bps, then 400+ bps as a stress escalation threshold.
• Consumer buffer: savings rate staying near 3–4% keeps the consumer sensitive to shocks; a sustained rebuild would be a true downside-risk reducer.
• Energy: whether crude declines actually translate into lower pump prices over coming weeks (real-income relief).

Calendar catalysts:

• May 8, 2026: BLS Employment Situation (April 2026). (bls.gov)
• Next UMich consumer sentiment release: preliminary May data is scheduled for May 8, 2026. (sca.isr.umich.edu)
• Next ISM Services report: May data release at 10:00 a.m. on the scheduled release day (per ISM page). (ismworld.org)
• Next Conference Board LEI release: watch for confirmation whether March’s drop was a one-off or the start of a renewed downtrend. (conference-board.org)

Sources

• apnews.com
• apnews.com
• apnews.com
• apnews.com
• axios.com
• conference-board.org
• federalreserve.gov
• federalreserve.gov
• ismworld.org
• prnewswire.com
• haver.com
• haver.com
• bls.gov
• bls.gov
• sca.isr.umich.edu