Intrade market indicates a 66.5% chance of recession in 2008

Trading on the Intrade Prediction Market indicates a 66.5% chance (down from 68.9% last week) of a U.S. recession in 2008. This is in the face of two diametrically opposed events this week: the ISM Services report indicated a contraction of the service economy, but Congress struck a deal on the fiscal stimulus plan that will be signed by President Bush on Monday, ahead of schedule.

People are not only quite worried that a recession is possible, but they consider it to solidly be the likely scenario. Nonetheless, conviction is still only "medium."

As a result of the very poor ISM Services report, my personal assessment is that there is a 55% chance of a recession for the U.S. economy in 2008. My gut feel remains that a recession is unlikely, but the data is what the data is.

The so-called weakness in the economy is simply not profound enough to strongly suggest an outright recession. For example, the weekly initial unemployment claims number has remained well below 400,000 even recently, while traditionally that number tends to spike well above that 400,000 in recessionary times.

Nonetheless, the Intrade indication is probably a good proxy for overall market sentiment.

-- Jack Krupansky