The chance of a U.S. recession is 38%, roughly one in four, according to Bloomberg Economics. This is a major about-face from April, when the forecast was zero.
The probability model for a recession in the next 12 months weighs a variety of factors including housing permits, consumer sentiment and the yield differential between 10-year and 3-month Treasuries.
Driving the deterioration are expected declines in corporate earnings in the second quarter, deteriorating consumer sentiment and soaring inflation causing some consumers to tap into their pandemic savings or credit cards for everyday expenses.
Economists note that this is a dichotomy occurring despite a continued strong labor market in the U.S. and strong pockets of post-COVID consumer demand.
“The risk of a self-fulfilling recession — one that can happen as soon as next year — is higher than before,” says Anna Wong, chief U.S. economist at Bloomberg Economics. “Even though household and business balance sheets are strong, worries about the future could cause consumers to pull back, which, in turn, would lead businesses to hire and invest less.
“The risk of a recession in early 2023 has risen substantially,” Wong warns.
American consumers are feeling the sticker-shock of 8.6% inflation, which is running far higher, into high double-digits, in certain categories of food and energy.
Plus, adjusted for inflation, hourly wages have fallen over the past eight months.
Americans' savings rate has declined to 5.4%, according to the U.S. Bureau of Economic Analysis.
If a recession does occur, the pandemic recovery that began in May 2020 would be the shortest one since the 12-month expansion of 1981-82, according to the National Bureau of Economic Research.
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