US: Recession Risks Elevated at 26% - Wells Fargo

US: Recession Risks Elevated at 26% - Wells Fargo

26 April 2016, 17:46
Roberto Jacobs
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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.”


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