UBS increases US recession probability to 25 per cent

UBS Global Wealth Management has raised the odds of a US recession to 25 per cent from 20 per cent, citing weakness stemming from softer jobs growth and the July unemployment data which stoked fears of a downturn.

The brokerage in a note released this week maintained its base case of a soft landing for the economy with consumer spending broadly determining the trajectory of growth; however, it called the outlook “cloudy”.

Earlier this month, J.P. Morgan raised the odds of US recession by the year-end to 35 per cent citing easing labor market pressures, while Goldman Sachs lowered its probability of a recession in the next 12 months to 20 per cent.

Last week the US Department of Labor had lowered its estimate for total payroll employment by 818,000 for the period from April 2023 to March 2024, meaning US employers had added far fewer jobs than originally reported in the year through March.

This came on the heels of the US unemployment rate jumping to a near three-year high of 4.3 per cent in July amid a significant slowdown in hiring, raising fears the labor market was deteriorating and potentially making the economy vulnerable to a recession.

Expectations for a rate cut of up to 50 basis points in the September meeting of the US Federal Reserve have risen, with Chair Jerome Powell signaling in his speech at Jackson Hole last Friday that the ‘time has come’ to reduce rates.

With the excess savings built up during the pandemic being used up, “continued income growth will be critical to keep spending rising, since a steady savings rate is probably the best we can hope for,” said Brian Rose, senior US economist at UBS.