Traphagen Recession Index

The Traphagen Recession Index (TRI) is a proprietary economic index developed by Traphagen as a tool to help predict US GDP growth rates and possible recessions. The TRI incorporates several different factors that have had a history of predicting recessionary periods months ahead of the official recession start. Some of the factors we actively monitor and are incorporated into the index include US corporate profit margins, Treasury yield spreads/trends, non-farm payroll trends, two different Leading Economic Indicators (LEI).

The TRI can range from 0 to 100 (although for the vast majority of the time should be in the 10 to 70 range). The index levels should be interpreted as ‘the percentage of a recession within the next 12 months’. Therefore, if the current index level is ‘35’, that means there is approximately a 35% chance of a US recession over the next year. The ‘average’ chance of a recession over any 1 year period is about 15%.

Traphagen developed the index for two main reasons. First, we wanted a reliable, diversified, and useful tool that would assist us in predicting recessions and economic growth rates over the intermediate term. This index is one of many tools we use to help position our client portfolios. Secondly, we wanted to give our clients an easy and accessible way to view our opinion on the US economy over time.

CURRENT LEVEL

TRI CHART

COMMENTARY

DETAILED DASHBOARD

FAQ

CURRENT TRI INDEX

20.4

 

HISTORICAL CHART

CURRENT COMMENTARY

The Traphagen Recession Index slightly pulled back from the previous 20.9 level. The data continues to indicate strength in the U.S. economy with the labor market still suggesting job creation and wage growth with certain pockets of weakness. The increase in personal income is providing stimulus for consumer spending which has been on a positive trend. The yield curve will continue to be monitored as the spread between short and long term rates have been slowly tightening. The short term rates continue to rise while the longer term rates have remained relatively steady. With improved sentiment on international growth we will see if the ‘safe haven’ longer term U.S. treasuries will see any increase in yields. 

 

DETAILED DASHBOARD

10 Year vs. 2 Year Treasury Note Spread

% CHANCE OF REC. BASED ON ABOVE METRIC

15%

 

US Treasury Curve Shape & Recent Trend

% CHANCE OF REC. BASED ON ABOVE METRIC

10%

 

Conference Board ‘Leading Economic Indicator’

% CHANCE OF REC. BASED ON ABOVE METRIC

10%

 

AIER Leading Economic Indicator

% CHANCE OF REC. BASED ON ABOVE METRIC

5%

 

Stock Market Action/Breadth

% CHANCE OF REC. BASED ON ABOVE METRIC

25%

 

SP500 Profit Margin & Trend

% CHANCE OF REC. BASED ON ABOVE METRIC

45%

 

Nonfarm Payroll (YoY%)

% CHANCE OF REC. BASED ON ABOVE METRIC

35%

 

FAQ

Q: What is the Traphagen Recession Index (TRI)?

A: Traphagen has incorporated 6-7 different factors that have had a great history of predicting past recessionS while at the same time limiting the amount of ‘false positives’ (or predicting recessions that never happened). We then weight all these factors differently and aggregate all signals into the overall TRI reading. 

Q: When did Traphagen develop this index?

A: Traphagen began research on the index and many different factors in late 2015 and developed the first iteration of the TRI in January of 2016. Overall we expect the TRI to remain largely unchanged through time, but if certain factors lose their predictive ability or others seem more important we can add and/or subtract pieces of the index. 

Q: How does the TRI affect Traphagen’s portfolios?

A: If the TRI is very low (lower than 15) or very high (over 60 or so) we would likely take some action. If the chance of a recession is below average, and therefore very low, we would likely position the portfolio in a more aggressive manor with more stock holdings. When the TRI is high (above 50-60) we would put more defenses in the portfolio and reduce stocks and likely increase alternative/bond holdings. 

Q: How often is the index updated?

A: Traphagen updates all factors and calculates the new TRI index level once per month. 

Q: I am a writer, author, reporter, or other interested party, can I use or quote your index level in my work?

A: You may, all we ask is that you cite the index with the source and Traphagen. 

Disclaimer: The TRI index level and the individual components are meant as an internal tool for Traphagen and we are publishing data on the website for informational purposes. None of the above information is meant to be an investment tool in isolation and no investment decisions should be solely based on the above information. If anyone has questions on the index or its components please contact Traphagen.