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While the probability of a recession has grown from 11.1% in May 2019 (forecasted in May 2018) to 29.6% in May 2020 as illustrated in the lower graph, our U.S. RevPAR Volatility Index remains in the first or lower quartile. Over the past thirty years or so, the index has only ever been lower in 67 months or about 18% of the time.

The index has recorded higher volatility than our benchmark on six occasions, January 1991 (9 months), December 1991 (3 months), June 2000 (6 months), April 2001 (47 months), December 2005 (11 months) and March 2008 (35 months). On average the index has breached our benchmark about three months after the onset of the last three recessions.

U.S. RevPAR Volatility Index and RevPAR Percent Change from Previous Year 1989-2019

Source: Hotel Investment Strategies, LLC based on STR data.

The model presented by the Federal Reserve Bank of New York to forecast recessions uses the difference between 10-year and 3-month Treasury rates to calculate the probability of a recession twelve months in the future.

The Relationship Between the Probability of Recession and Recorded Recessions 1959-2019

Source: Federal Reserve Bank of New York and National Bureau of Economic Research.

With RevPAR projected to grow by 1.6% to $87.32 in 2019 and by 1.8% in 2020 to $88.89, we foresee the index remaining in the in the first or second quartiles for the foreseeable future.