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A UBS economist sees increased chances of a U.S. recession within a year, taking into account the latest data.
The aggregate probability of a recession within a year now sits at 60%, up from 40% in June. UBS measures the recession chances on a monthly basis, taking into account data from hard macro, the UST yield curve, and credit.
“The probability of being in a contractionary phase is historically very high–94% in July vs 35% in April–but in the current case, the US team’s modal forecast is that the contraction does not morph into a full-blown recession. The contributions of the components to the factor over the past few months are mixed in July, labor and housing data pulled the factor down, but industrial production and household spending actually held it up,” the economist said in a client note.
As far as the yield curve is concerned, the probability of U.S. recession is now at 71%, up from 57% in June.
“Our aggregate of 60% is computed with this figure; when using instead the end of July number to align with the monthly hard data in hand, the aggregate indicator is 55% for July,” the economist clarified.
On the other hand, the recession signal from credit data is “still benign,” as it stands at 15% for July.
