The U.S. Recession Probability (I:USRPEM) is a special index designed and published by St Louis Fed (AKA FRED Economic Data, https://fred.stlouisfed.org/) to calculate the likelihood of the U.S. economic downturn at a given time. Lately it has attracted a lot of attention from traders, investors and economists.

While 63% doesn't sound too bad, it's the worst reading since August 1981. Since 1960, the U.S. economy has always entered a recession within 12 months of a reading above 50%. The only exception, so far, is the current period.

The bottom line: The probability curve suggests a strong likelihood of a recession sometime in 2024. In the words of the St. Louis Federal Reserve, the likelihood of false positives is now “unprecedented.” Since the inception of the S&P 500 in 1957, the U.S. economy has experienced ten recessions. The chart below shows the index's largest declines during the recession. The S&P 500 has declined an average of 31% in the past 10 recessions. To put things into perspective, the index is currently just 1 percentage point away from its all-time high, so if a recession occurs in 2024, the implied downward trend would be about 30%.