Resource Utilization and Risk

How far is output from its potential — four ways of answering the same question.

The CBO gap comes from the Congressional Budget Office's own model of potential GDP. The other three come from two models built by economist Michael Kiley. The structural model gives two: the Beveridge‑Nelson gap, how far output sits from its long‑run trend, and the production‑function gap, how far output sits from what the economy's labor and capital could normally produce. The Unobserved Components (UC) model gives a simpler, complementary estimate — the same model that also produces the equilibrium real interest rate, r*.

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How likely — and how large — a sharp rise in unemployment looks from here.

Two models built by economist Michael Kiley estimate the risk of a large increase in the unemployment rate, a particularly close indicator of a U.S. recession. The Full Model combines the unemployment rate, inflation, credit growth, and two financial spreads; the Full Model ex. Credit drops credit growth, a check on how much that one variable drives the reading; the Financial Model uses only the corporate‑bond and yield‑curve spreads, the more conventional recession‑prediction approach. Each is shown as a probability — the chance unemployment rises by an unusually large amount — at both a 1‑year and a 3‑year horizon, plus the implied size of that increase if it happens and, for the two Full Models, the whole distribution of the change in unemployment. Models can end in different quarters: credit data publish with a lag, so the Full Model ends a few quarters before the others.

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