"Behind the recent jump are primarily the weak labor market numbers, but almost all the economic data have turned soft since the end of last year. It isn't a stretch to expect the indicator to cross the key 50% threshold amid the Iranian conflict and the resulting surge in oil prices."
"Oil prices are an important variable in the model, and with good reason: every recession since WWII, save the pandemic recession, has been preceded by a spike in oil prices. The strength of the subsequent recovery following a resolution of conflict in the Middle East depends on how quickly shipping through the Strait of Hormuz is normalised."
Moody's chief economist Mark Zandi warns that recession odds have climbed to concerning levels, reaching 49% probability over the next 12 months as of February, before recent Middle East military actions. Weak labor market numbers and broadly softening economic data since year-end are primary drivers. Historically, Moody's recession indicator has proven accurate, spiking above 50% before recessions in 2020, 2007, and 2001. Oil price increases represent a critical variable, as every post-WWII recession except the pandemic recession was preceded by oil price spikes. While Wall Street remains relatively calm, further escalation could push the indicator above the critical 50% threshold. Oxford Economics estimates oil would need to reach $140 per barrel over two months to trigger global recession.
Read at Fortune
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