UBS Global Research reported a slight decrease in the probability of a US economic recession. An aggregate recession probability model developed by the firm, which takes into account key data, rates, and credit factors, dropped to 53% in July from 60% a few months ago.
Although the risk of a high recession still exists, the report shows that the latest economic data has not worsened significantly, pointing to a relatively stable outlook.
"Although we have withdrawn our recession forecast in the spring, we have consistently emphasized that the economy is experiencing a significant slowdown (from growth above 3% in 2023 to around 1½ in 2024 (from Q4 to Q4))," the analysts said. .
This slowdown has raised concerns among market participants, especially after disappointing employment data.
However, despite these concerns, UBS insists that the probability of a recession, although high, does not indicate any sudden change.
UBS tracks 16 key data indicators to gauge the health of the economy. As of June 2024, these indicators show continued horizontal movement, with no clear momentum either up or down.
The aggregate data factor, which measures the average of these indicators, remains slightly below zero, indicating a lack of significant improvement or deterioration. The probability of a recession indicated by this model is 80%, slightly lower than earlier this year but still worrying.
UBS also monitors credit market indicators, including leverage ratios and interest coverage, as well as data from the Senior Loan Officers' Opinion Survey (SLOOS) from the Federal Reserve.
The probability of a recession from this credit market indicator now stands at 28%, a level that has remained relatively stable since it began to rise in the second quarter of 2022.
Although this probability is lower than that obtained from the main data model and the yield curve, it still emphasizes the fragility of the current economic expansion.
The resilience of the US economy is largely supported by strong consumer spending, particularly among high-income households that benefit from positive wealth effects and ample liquidity.
Still, UBS warned that as fiscal support wanes, the economy's reliance on consumer strength makes it vulnerable to shocks. A gradual slowdown in the labor market, although in line with UBS projections, adds to the fragility of this expansion, underscoring the need for caution.
