The “probability of recession”: Evaluating probabilistic and non-probabilistic forecasts from probit models of U.S. recessions

•Probit models estimate probability of recession based on slope of the yield curve.•Good at yes/no recession forecasts based on exceeding a threshold probability.•In summer '06, most models considered issued a recession forecast for summer '07.•Poor calibration: when estimated probability is 40%, 75% of obs. are in recessions.•Poor calibration makes probit output a bad guide to “probability of recession”.

This letter evaluates forecasts from probit models that use the slope of the yield curve to forecast recessions. These models give reliable non-probabilistic warnings of recessions, but the estimated probabilities do not match the conditional frequency of recession months.