Recession Odds Soar To 70% In Two Years, According To JPMorgan

A lot can change in less than two months: back on October 18, when the initial market drop seemed like just another dip-buying opportunity, JPM predicted that the odds of a recession in 1 year were a modest 27.6%, rising to 60% if the forecast period is extended to two years.

Well not anymore, because according to JPM's latest "real-time quant monitor", the risk of a recession has since spiked to a no longer trivial 35%, the highest in series history (and up from 16% back in March)...

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... while the probability that the next presidential recession will take place during a recession (i.e., recession odds in two years) has now surged to more than double that, or over 70%.

Meanwhile, some of JPM's other near-term forecasts include:

  • GDP growth nowcast drops to to 2.22% from 2.27%
  • The forecast of average payroll growth over the next 12 months fell to 124k from 146k
  • The forecast of core PCE inflation over the next 12 months was little changed at 1.92%

As a reminder, JPM calculates recession probabilities based on regression models, which track such indicators as prime-age male participation, consumer and business sentiment to prime-age male labor participation, compensation growth, and durables and structures as a share of gross domestic product.

Separately, Bank of America is out with its own latest recession forecast, and when looking at blowing out credit spreads and a yield curve which "has flattened like a pancake with part of the curve already inverting (the 2yr-5yr)", notes that such moves are usually indicative of a weakening economy, prompting recession fears, and notes that its "recession models - which are a function of various market measures - show that the risk of a recession in 2019 is now between 20 and 37%"

To avoid scaring too many clients, BofA is clearly unhappy with its existing model, and in a Friday note writes that it is introducing a new big data recession probability model that accounts for a broader basket of indicators: the 3mo-10yr treasury spread, building permits, commercial & industrial (C&I) loans, S&P 500, real consumption, and corporate spreads. According to this model, the risk of a near-term recession is far lower, predicting a 6-mo ahead probability of only 9%.

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