US Recession Risks: Recession unlikely if everyone dis-saves and financial conditions are loose

Given the slowdown in the US labor and housing data, many investors are understandably focused on downside growth risks. The weak US labor and housing data is preventing our US recession regime model from falling below 30% (link).

However, the bigger picture is that many of the other typical signs you see heading into a recession are not present today.

US real narrow money has returned to growth after a prolonged period of drawdown. The economy tends to be most vulnerable to recessions when real money growth is contracting.

US household savings rates are also falling again. Typically, recessions see households turn more cautious and increase their savings rate, not lower it. US fiscal deficits also remain large, so both the government and households are dis-saving right now. This is a key part of the Kalecki-Levy framework we use to understand the economy (link).

Recessions also do not tend to occur with equities at the highs. You typically see an initial drawdown of 10%+ that creates cascading wealth effects and feedback loops between hard and soft data. The time to start worrying is the next time we get a 10% drawdown.