According to a new real-time economic monitor launched by JPMorgan this week, the US economy has a roughly 28% chance of falling into a recession over the next 12 months, a pessimistic take which is double the prediction spit out by a similar model used by the NY Fed which shows as 14.5% recession probability in 1 year.
The recession probability surges to 60% if the forecast period is extended to two years, or more than even odds that the US will be in a recession some time around the next presidential election.
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.
While in simple regressive quantitative terms, recession risk is expected to grow substantially by 2020 - assuming it does not strike in 2019 - a qualitative explanation for why a recession may strike then is because that's when Trump's fiscal stimulus is expected to shift from an economic tailwind to a headwind, all the more so if Democrats win the House and prevent any further fiscal stimulus from being enacted.
And speaking of upcoming recessions, yesterday we brought readers the latest bearish commentary from Guggenheim Chief Investment Officer Scott Minerd who in an interview with Goldman said that he expects a recession in just over a year, during which a 40% drop in equities is "justifiable to me on a technical and a fundamental basis" and that "by the end of Q2 next year, I expect risk-off everywhere." The good news is that it probably won't last too long, because in response "the Fed will cut rates to zero, employ aggressive forward guidance, and resurrect QE."