US: Recession Risks Elevated at 26% - Wells Fargo
Analysts from Wells Fargo, explained that with a volatile and
challenging first quarter almost in the books, the probability of a
recession over the next six months is about 26% based on their model.
Key Quotes:
“With
nearly complete data for Q1 2016, our preferred recession model remains
elevated relative to the past few years. Our approach uses a Probit
model to predict the chances of a recession during the next six months.”
“Using
the most recent data (through March 2016), our model suggests an
elevated probability of a U.S. recession during the next six months
(about 26 percent).”
“The recent improvement in these indicators
toward the end of Q1 offers some signs of positive momentum heading into
the second quarter. In addition, although it is the highest reading in
the post-Great Recession era, the probability is still well below the
threshold of above 50 percent for a recession call.”
“The current
average probability is 33.5 percent, and this method predicted all
recessions successfully since 1980 without producing any false
positives. For decision makers, the elevated recession probability based
on our preferred model is a more serious sign, as the quarterly
probability has not crossed the 20 percent line in the post
Great-Recession era.”
“At present, we are not calling for a
recession within the next six months. However, given that the recession
probabilities based on our preferred model and the average of all models
are somewhat elevated, it is not wise to entirely dismiss recession
risk.”
“Our call for Q1 real GDP growth is just 0.1 percent,
which is consistent with elevated recession probabilities and well-below
the average quarterly growth rate of about two percent over the past
five years.”
