There is a 70 percent chance that the United States will face a recession in the next six months, CNBC reported citing a study conducted by MIT Sloan School of Management and State Street Associates.
The study used a four-factor index and then applied Mahalanobis distance, to compare current market conditions with previous recessions. The method provides a way to measure how similar some set of conditions is to a known set of conditions.
The Mahalanobis distance measures the distance between a point (P) and distribution (D) and was originally used to analyse human skulls, the researchers told CNBC.
The four metrics used were monthly industrial production, non-farm payrolls, stock market returns and the slope of the yield curve.
As of November 2019, the reading on the index was 76 was percent, the report added. When the index crossed 70 percent, the odds of a recession inthe next six months rose 70 percent.
Examining data starting from 1916, the researchers found the data reliable since the index increased before every recession, the report said.
The US has so far had 33 recessions, including 12 from 1945 to 2009, data from the National Bureau of Economic Research showed.
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