MIT study: 70 percent chance of recession within six months

Feb. 5 (UPI) -- A new study used a scientific approach developed to measure human skulls to predict a 70 percent chance of economic recession in the next six months.

Researchers at MIT Sloan School of Business and Boston's State Street Associates applied economic data from four factors to the principles of the Mahanobis distance, a measurement tool for human skulls. They created an index combining industrial production, non-farm payrolls, stock market return and the slope of the yield curve [the interest rates of bonds having equal credit quality but differing maturity dates].

Applying the measurement formula to economic conditions as far back as 1916, researchers discovered the index, called the KKT Index, to be a reliable indicator or upcoming recessions. When it went above 70 percent, the likelihood of a recession within six months rose to 70 percent. The index was 76 percent in November 2019.

The methodology was published last week as "A New Index of the Business Cycle," by William Kinlaw, Mark Kritzman and David Turkington.

Other economic indicators suggest that the current U.S. economy is strong, but the combination of weakening industrial production and the slope of the yield curve is disturbing, Kinlaw said. He added that the odds of a recession occurring in any six-month period, without conditions, are only 17 percent.