Recession Forecast: Understanding the Numbers Behind the Headlines
Recession Forecast: Understanding the Numbers Behind the Headlines
Forecasting recessions is one of the toughest challenges in economics. Even with sophisticated models, economists, policymakers, and investors rarely get both the timing and severity of downturns right. A recent benchmark comes from The Wall Street Journal’s Oct 2025 survey of economists, which estimated a 33% probability of a U.S. recession within the next 12 months.
Putting 33% in Context
At first glance, 33% may seem high, but without context, it’s hard to interpret. Historically, there’s always been a “baseline” probability of around 15% that a recession will begin in any given year. That baseline comes from history: since World War II, the U.S. has experienced 13 recessions over roughly 80 years, which works out to about one every seven years. This means a moderate level of recession risk always exists, even during seemingly stable periods.
Why Forecasts Should Inform, Not Dictate, Investment Decisions
Recession probabilities, such as 15% or 33%, can provide helpful context for understanding economic conditions, but they should not drive short-term investment decisions.
Economic forecasts shift frequently as new data emerges, and even seasoned professionals can’t consistently predict market turns. In fact, the “Crystal Ball Challenge” experiment demonstrated that even when participants knew tomorrow’s news in advance, their trading success rate was just 51.5% (barely better than chance), and many still lost money through poor risk management (Haghani & White, 2024).
The takeaway? If investing is difficult even with perfect foresight, relying on forecasts alone is an even weaker foundation for long-term decision-making.
References
Haghani, V., & White, J. (2024, September 23). When a crystal ball isn’t enough to make you rich.
