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From The Motley Fool: This Indicator Has Called Every Recession Over the Last 80 Years. Here's What It's Saying Now.

https://www.fool.com/investing/2026/04/14/this-ind...

Elan

I went to that link and guess what popped up.
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How couldn't something called the Vicious Cycle Index (VCI) be 100% accurate?

Oh, it uses the unemployment rate. The index that every government has a strong incentive to manipulate.

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Barf

Barf

Barf all you want while you shoot the messenger. The reality is that we are very likely already in a recession. Typically it takes the NBER six months to confirm a recession after the fact. The (melodramatically named) VCI is a way of identifying that reality in a more timely fashion.

Unemployment rises sharply during recessions, and then falls gradually during expansions. There are also long term trends in the UNRATE data. SAHMREALTIME cleans up the data, leaving the recession surges easy to see. Peak SAHMREALTIME occur near the end of a recession. SAHMREALTIME looks for rapid increases in unemployment, and ignores long-term trends.

VCI is a new indicator, and so has no post-discovery record. I don't see any advantage to VCI. Maybe just a marketing bit, or maybe the Yahoo artice is incorrect in saying a recession is indicated when:

Sahm Rule is "average unemployment rate over three months rises by 0.5% above its 12-month low"
VCI is "average unemployment rate over three months rises by more than 1% over the previous 12 months".

From these descriptions, VCI would signal later than the Sahm Rule.

=== links ===

Unemployment Rate (UNRATE)
https://fred.stlouisfed.org/series/UNRATE/

Real-time Sahm Rule Recession Indicator (SAHMREALTIME)
https://fred.stlouisfed.org/series/SAHMREALTIME

Labor Force Participation Rate (CIVPART)
https://fred.stlouisfed.org/series/CIVPART/


Vicious Cycle Index (VCI) created in 2026
Moody's Analytics chief economist Mark Zandi and his team created the indicator... based the index on the Sahm Rule, developed by economist Claudia Sahm. The Sahm Rule signals that the economy is in the early stages of a recession when the average unemployment rate over three months rises by 0.5% above its 12-month low.

The VCI made two improvements to the Sahm Rule, making it more powerful. First, the index adjusts unemployment numbers using a five-year moving average of labor force participation. This helps capture workers who give up on finding a job and leave the workforce. Second, the VCI indicates that the economy is in recession when the average unemployment rate over three months rises by more than 1% over the previous 12 months.

The key to the VCI's greater accuracy compared to the Sahm Rule is that it factors in rising unemployment and lower workforce participation. This change helps it avoid false alarms that can flash when the labor market appears healthy but is actually weakening.

Moody's Analytics has raised its probability that the U.S. economy will enter a recession over the next 12 months to 48.6%. That's higher than EY-Parthenon's 40% chance and Goldman Sachs' (NYSE: GS) 30% odds of recession. However, those organizations don't use the VCI.
https://finance.yahoo.com/economy/articles/indicat...


Moody's Economist Unveils 'Vicious Cycle Index' to Detect Looming Recessions, Apr. 11, 2026
Mark Zandi's new AI-powered metric aims to provide a more nuanced view of the job market beyond the standard unemployment rate.
https://nationaltoday.com/us/wa/seattle/news/2026/...

All this is somewhat like arguments about how many angels can dance on the head of a pin.

What is the point -- with regard to investing -- about if we are in, or headed into, a recession?
People like to look for reasons the world is about to crash. Is that what this is? The thrill of predicting disaster?

It always brings me back to a couple of old quotes.
"Price is not the only reason we buy, but price is the only reason to sell."

and

"Aren’t you glad you are a trend follower? Leaving aside the potential performance advantages of trend following for a moment, it is just less drama. Case in point, as a trend follower you can avoid getting caught up in the endless debates about [things]."

The market is going up, so this is not the time to sell.


Back to the prospective recession debate:
"for the U.S. economy, the strongest historical recession indicator is Real Retail Sales Growth. Since the Census Bureau began to collect and publish it as a series in the late 1940s, it has expeditiously nailed every recession that has occurred, giving only a few false positives."
..
"Another accurate recession indicator is Industrial Production Growth. It’s available to a period much farther back in time–specifically, the year 1919. With the exception of a single costly omission in the 1974 recession, it’s done a very good job of accurately calling out recessions as they’ve happened."



"[Another] coincident recession indicator worth looking at is housing start growth"

FWIW, all three of these FRED indexes are up YOY.

Anecdotally, there are many new houses in my area that have gone up recently. My community is almost all custom(ish) homes. On the other end of my street, on the golf course side of the road, three years ago there were no houses. Last week I drove that way for the first time in a long time. I counted 8 houses that used to be empty lots and 2 more under construction.
Another area that I only drive by once a year or so I hit an area where a builder is putting up 25 tract homes.

My brother just moved to Texas. Into a new tract home division, all under new construction.

One of my sons just moved back East. They couldn't find an existing house that they liked for a price they liked, so they are buying a new home in a 100+ house new tract division. They expect to be breaking ground this month.

The reality is that we are very likely already in a recession.

Maybe, maybe not.

VCI is a way of identifying that reality in a more timely fashion.

The problem is that the VCI uses the labor force participation rate. It normally changes slowly, but with the large changes in immigration and emigration over the past year it is hard to know how to correct for them.

DB2

What is the point -- with regard to investing -- about if we are in, or headed into, a recession?

…

Back to the prospective recession debate:…


So no discussion of a recession is warranted, unless it’s YOUR favorite recession indicator. Did I get that right?

Elan

So no discussion of a recession is warranted, unless it’s YOUR favorite recession indicator. Did I get that right?

Don't be silly.

Some people argue A, some people argue NOT-A.
Difference of opinion, difference of how to weight things.
None of it is personal.

Are we in a recession?
No.

Is one coming?
Yes, one is always coming.

These aren't hard questions : )

Jim

Is one coming?
Yes, one is always coming.

These aren't hard questions : )

Jim

My wife just came running into the office to see why I was laughing so hard I couldn't breathe.

+1

The reality is that we are very likely already in a recession.

At the same time, the stock market is at an all-time high. Doesn't sound too recession-like to me. Looking back 25 years, the NAZ peaked in March 2000. The recession started in March 2001.

DB2

Looking back 25 years, the NAZ peaked in March 2000. The recession started in March 2001.

If we're into anecdotes, the market reached its all time high before the Great Recession on 10/7/2007. It took until 12/1/2008, a whole year, for the NBER to declare that the recession had started in December 2007.

Elan

Looking back 25 years, the NAZ peaked in March 2000. The recession started in March 2001.
---
If we're into anecdotes, the market reached its all time high before the Great Recession on 10/7/2007. It took until 12/1/2008, a whole year, for the NBER to declare that the recession had started in December 2007.

So, it seems unlikely to be at an all-time high and in a recession at the same time.

DB2

So, it seems unlikely to be at an all-time high and in a recession at the same time.

Seems so. But I've been in box stores a few times in the last couple weeks, getting supplies for the usual gardening projects.
The stores have been almost abandoned, very empty. It was eerie. These places are usually mobbed in my area, but not lately.
I did take it as an indication that folks are pretty darned nervous.
If there's some stability and inflation fears recede, they should feel more confident.
But who knows what chaos will descend upon us next.


Mark

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