Coinciding with recent financial market volatility and persistent concerns surrounding the health of China’s economy, talk of an impending US recession has grown substantially in recent weeks.
According to a survey of 60 economists polled by the Wall Street Journal, 21% currently predict that the US will enter a recession in 2016, the highest percentage seen since the great recession.
The chart below, supplied by ANZ, reveals the recent increase in those economists who believe a recession will arrive in 2016.
While recession risks are building according to the survey, Tom Kenny and Giulia Specchia, economists at ANZ, don’t share this increasingly gloomy view, suggesting that if anything the risks have diminished from levels seen earlier in the year.
“Notwithstanding the possible distortion to some asset prices owing to unconventional monetary policy, both the yield curve and financial conditions suggest that the US economy is not close to a recession,” say the pair. “Our own recession index – which is a combination of real and financial data – suggests that the probability of a recession over the next 12 months remains low at roughly 5%. This is less than our estimate of 20 January.”
As you can see, the ANZ model on US recession risk remains comparatively low, falling back in recent weeks on better economic data and less financial market volatility.
Should ANZ, like the majority, be proven right, the current US economic expansion – now closing in on 80 months – will soon be the fourth longest registered since the end of World War II.
“The length of the expansion doesn’t imply that the probability of a recession has risen. Indeed, the fundamentals remain positive,” says Kenny and Specchia. “Specifically, household income is being supported by solid jobs growth and rising wages.”
While there is little doubt about the strength of the US labour market at present, along with household consumption, whether that can continue given recent weakness in some lead economic indicators continues to create an element of doubt.