Recession Risk Outlook 2026
Leading indicators, yield curve, Sahm rule, and composite recession probability models.
Data as of · Outlook refreshed
Current State
Recession calls are more useful as probability distributions than binary predictions. Composite leading indicators and spreads have the best track record; single indicators are noisy.
Macro Regime Context
Reflation transitioning toward stagflation changes what a slowdown would cost. Our regime work describes a Fed that cannot cut into inflation it has not beaten and cannot hike without breaking the consumer, which is the one configuration where a growth stall arrives without the usual policy offset. So the recession question on this page is not only how fast the economy might be slowing, but how much of that slowing the Fed would be free to answer. The growth leg of our regime call is the unresolved one, and our own indicators are currently contesting it rather than settling it.
Full regime analysis →Key Metrics
The recession call rests on three July prints and four older ones
Our composite recession probability index printed 21 on July 13, up 90.91% over 30 days and 61.54% over the last seven. The 90-day change is 31.25%, so almost all of the move is recent rather than the tail end of a longer climb.
Now the awkward part. Three of the other six gauges on this page carry May 1 observations, 74 days old: manufacturing new orders, the Brave-Butters-Kelley leading index, and the smoothed US recession probability. The Sahm rule's latest print is from June 1, 43 days old. Only the yield spread, from July 10, and financial conditions, from July 3, sit anywhere near the composite in time.
That is not a complaint about data providers. It is a statement about what a recession call made this month can actually rest on. The two series that have moved are the two you can currently see: the composite is up sharply, and the 10Y-2Y spread, at 0.35, is down 16.67% over 30 days and 30% over 90. The reassurance, such as it is, comes from readings taken before the July 7 tanker strike in the Strait of Hormuz that our regime work says has put a premium back into oil.
Our framing for this topic holds that composite leading indicators and spreads have the best track record, and that single indicators are noisy. Take that seriously and the freshest evidence and the most useful evidence are, for once, the same evidence. Both lean the same way.
How likely is a US recession in July 2026?
Twenty-one, on a scale that has run from 6 to 51 over the past year. That is a lower-half reading, and a number that has nearly doubled in a month is still a number sitting in the lower half of its own range. Anyone converting 21 into a recession call is doing the conversion themselves.
The Sahm rule is where the reassurance concentrates, and it carries less weight than it is usually given. Its June 1 print was 0.07, its 52-week low, down 65% over 90 days, against the 0.5 threshold that defines a trigger. A threshold rule that has not tripped tells you the threshold has not tripped. It does not tell you what is coming, and our own framing for this page says single indicators are noisy, which applies to the comforting ones exactly as much as to the alarming ones.
The smoothed US recession probability says the same thing in a different register. Its May 1 print is 0.54%, up 200% over 90 days, and 0.54% is, in any language, nothing.
The honest reading is a distribution with a fatter tail than a month ago, not a verdict. And the strongest case against even that much: our late-June scenario work trimmed the classic deflationary recession path rather than raising it, and the employment data underneath these triggers has been improving rather than cracking. Fair. But the reason recession risk deserves pricing here is the regime, not the triggers. A stall would land on an economy whose central bank has no clean way to answer it.
A curve flattening for the wrong reason
The 10Y-2Y spread printed 0.35 on July 10, unchanged over seven days, down 16.67% over 30 and 30% over 90. Its range across the past year runs from 0.27 to 0.74, so the curve sits far nearer the flat end than the steep one, and it has been travelling that way for a quarter.
The textbook sequence is an inversion, then a violent steepening as the market prices cuts, with the recession landing inside the steepening. Nothing resembling that is on the tape. What is happening instead is a positive spread compressing while the front end stays pinned, which is what our regime work describes when it says cut expectations keep getting pushed out. The long end is not rallying and the short end is not falling.
Flattening of that kind carries close to the opposite meaning of the familiar one. It is consistent with real policy tightening against a growth signal our own book cannot yet adjudicate, and it may never present itself as an inversion at all. A desk waiting for one could wait through the entire episode and never receive its signal.
Two objections, both against me. The curve measure with the best historical record is the 10Y-3M, and the spread on this page is the 10Y-2Y: they can diverge, and the one with the pedigree is not the one being quoted. Beyond that, 0.35 is a positive spread, and no calibration anybody uses reads it as a recession signal. The level that would matter is 0.27, the low of the past year. A move through it, with the front end still held up by inflation the Fed cannot look past, would be the curve saying something new instead of repeating something stale.
Loose credit and a capex high are the best case against a downturn
Financial conditions are the strongest card the other side holds. The NFCI printed -0.515 on July 3, with a 90-day change of -14.44%, and it sits closer to the loosest reading of the past year, -0.56217, than to the tightest, -0.45. Our regime work reads the same thing from the credit side and calls conditions easing at the margin, with the tightening impulse stalled at an extreme.
Capex agrees, or it did. Nondefense capital goods orders excluding aircraft printed 83951 in the May 1 vintage, the top of its 52-week range, up 6.28% over 90 days. Firms bracing for a contraction do not leave orders at the high of their year.
Both arguments have a hole, and the holes are different. The orders print is 74 days old, a photograph of May taken before the oil rebound our desk flagged after the July 7 strike in the Strait of Hormuz, and before everything else that has happened since. The NFCI is current to July 3, which is the better claim, but an index already near the loose end of its year has less room left to loosen, and financial conditions describe the terms credit is offered on rather than the demand that has to show up next quarter.
A counterweight sits in the same May file. The Brave-Butters-Kelley leading index printed -1.1802065068203096 on May 1: negative, and closer to its 52-week low of -1.3266954725204885 than to anything else in its range, though it did rise 4.46% over the preceding 30 days. Two leading series, one vintage, opposite directions.
Which is the argument for holding recession risk as a distribution rather than a verdict. It is also why the composite, at 21, is worth more of your attention than any single indicator on this page.
Active Scenarios Affecting Recession Risk
What happens to stocks, bonds, and the economy when the yield curve inverts? A historically reliable recession signal explained with live data.
What happens when the Sahm Rule recession indicator triggers? Every historical instance, market impacts, and what it means for your portfolio.
What happens when oil prices spike? Inflation fears, consumer squeeze, recession risk, and the complex impact on stocks, bonds, and the dollar.
What happens when US home prices crash? The wealth effect, banking stress, and cascading economic impacts of a housing downturn explained.
What happens when weekly jobless claims surge? The highest-frequency recession indicator, what levels matter, and how markets respond to rising layoffs.
What happens when the yield curve steepens rapidly? Bull steepener vs bear steepener, recession timing, and the implications for banks, bonds, and equities.
What happens when banks pull back on lending? How tighter credit standards predict recessions, default waves, and the transmission from Wall Street to Main Street.
What happens when the manufacturing sector enters deep contraction? Historical recession correlation, supply chain effects, and market reactions to collapsing factory output.
Recent Analysis
The VIX sits near 16 while Bitcoin’s Fear and Greed Index reads 15. That gap is June’s rates shock showing up in the one asset built to feel it first.
Sticky 3.6% inflation, rising claims, and a Sahm indicator near 0.3. The strict version needs inflation above 4% and unemployment above 5%, and the pipeline is pointed the wrong way.
The Sahm indicator is near 0.28 and claims are rising, yet cyclicals lead defensives and credit spreads are tight. The hard-landing case is on the back foot for now.
From Brazil's rare earth gambit to the Warsh hearing, the signal density is unusually high.
Four converging signals in six hours reveal the fault lines of a reflation-to-stagflation transition.
Multi-gigawatt AI compute deals are now competing directly with energy markets and capital allocation.
WTI at $111 has mechanically pre-loaded the next CPI print, the only question is whether markets are ready for the answer.
While markets fixate on CPI headlines, a quieter upstream surge is building the next wave of consumer price pressure.
St. Louis stress is accelerating at near-regime velocity, and the earnings reckoning it predicts is still six months away.
Strong March payrolls buy the Fed time, but stagflation means more time is precisely what nobody can afford.
What to Watch
- •Sahm rule trigger (0.5 threshold)
- •10Y-3M yield curve (most reliable historically)
- •Conference Board LEI 6-month change
- •Initial jobless claims breakout
- •ISM manufacturing below 45
Frequently Asked Questions
What is the recession risk outlook for 2026?▾
Recession calls are more useful as probability distributions than binary predictions. Composite leading indicators and spreads have the best track record; single indicators are noisy. The live metrics on this page plus the active scenarios below show where the current environment sits on the distribution of possible paths. The outlook is continuously updated rather than locked in as a point forecast.
What should I watch to track recession risk?▾
The core watch list for recession risk includes: Sahm rule trigger (0.5 threshold); 10Y-3M yield curve (most reliable historically); Conference Board LEI 6-month change. The full list is on this page under "What to Watch." These signals are chosen because they are leading rather than coincident, and because they have historically flagged regime transitions before consensus catches up.
How does recession risk fit into the broader macro regime?▾
Every Outlook Hub is anchored to the current Convex regime classification (Goldilocks, Reflation, Stagflation, or Deflation). The Macro Regime Context section on this page shows how recession risk typically behaves in the current regime and what a regime change would imply for these metrics.
Which scenarios could change the recession risk outlook?▾
The "Active Scenarios" section lists scenarios that most directly affect recession risk conditions. Each scenario page includes a probability-weighted asset response, historical precedents, and live trigger metrics. Multiple active scenarios at once are the strongest signal that the outlook is about to shift.
How often is the Recession Risk Outlook refreshed?▾
The key metrics on this page pull live data and refresh within minutes of each release. The regime context and scenario probabilities update daily. The narrative itself is rewritten against the live data on a weekly rotation, with the date of the current version shown at the top of the page, and it is rebuilt sooner when the structural read on recession risk changes materially.
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Outlook hubs aggregate live data, scenarios, and analysis from the Convex research desk. They are educational and for informational purposes only. They do not constitute financial advice.