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Recession Indicator

The Recession probability marks 30.7% in July

- Official publish resumes and estimation method is improved

  Senior Economist


  Against the background of the spread of the new coronavirus, the leading index of business conditions (hereinafter referred to as the leading CI) published by the Cabinet Office, which is the underlying data for calculating the recession probability, has fallen significantly from March to April. This unprecedented rapid deterioration of the leading CI distorted the calculation of this probability, and could give an erroneous signal to future business conditions.
  With this troublesome, although this probability has been calculated and posted as a reference value since April 2020, we have revised the estimation method to more appropriately indicate the future of the economy, taking into account the latest circumstances. In this revision, we modified the model in the following ways; 1) change an assumed statistical probability distribution to flexibly capture large fluctuations in the Leading Index, and 2) newly take prior information and real data into account, in keeping with leadingness to the real economy and latest circumstances (for more details, please refer to here).
  Based on the above revision, we resume the publication of this indicator as an official release.

July: The Recession Indicator marks 30.7%--The Leading Index rose for two consecutive months

  The Recession Indicator for Japan released by Japan Center for Economic Research (JCER) marks 30.7% (Figure 1). The Leading Index as an underlying data rose for two consecutive months, due to positive contributions in inventory ratios of producer goods for mining and manufacturing and of final demand goods, sales forecast of small businesses, and others. According to the ESP forecast survey released by JCER, the number of economists responding that the "trough" is May 2020 increase. If these views are correct, the behavior of the recession probability suggests that the economy has got out of a recession about two months ahead of the real economy.

Figure 1. The Recession Indicator (July 2020)


September: The Recession Indicator was 56.5%

- Deterioration of the employment situation could be a factor.



August: The Recession Indicator was 31.7%

- Huge probability reduction contributed by the well-performed indices of an inventory ratio



July: The Recession Indicator was 82.7%

- Exceeding the warning level due to the stock pile-up resulting from the dismal foreign demands.



June: The Recession Indicator was 44.5%

- The probability almost stayed at the previous month's level.



May: The Recession Indicator fell to 37.1% further

- New housing construction and stock prices contributed to the improvement