""The algorithm has identified building permits as the most critical economic variable for predicting recessions. And while permits had been holding up reasonably well, as builders supported sales through interest rate buydowns and other incentives, inventories of unsold homes are now high and on the rise," Zandi warned. "In response, builders are pulling back, and permits have started to slump. They are now as low as they've been since the pandemic shutdowns.""
"In social media posts on Sunday, he noted that Moody's own leading economic indicator that uses machine learning has estimated the odds of a recession in the next 12 months are now at 48%. Even though it's less than 50%, Zandi pointed out that the probability has never been that high previously without the economy eventually slipping into a downturn."
Moody's leading economic indicator that uses machine learning estimates a 48% chance of a recession in the next 12 months. The indicator has never shown such a high probability previously without the economy eventually slipping into a downturn. The algorithm identifies building permits as the most critical variable for predicting recessions. Permits had been propped up by interest-rate buydowns and incentives, but inventories of unsold homes are rising. Builders are pulling back and permits have slumped to pandemic-era lows. July residential building permits were at a 1.35 million annual rate, down 2.8% month-over-month and 5.7% year-over-year. Mortgage rates have eased from near 7% to about 6.3%, but it remains unclear if that will revive building. August permit data is expected to be closely watched for implications on Fed policy.
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