UBS Raises US Recession Probability To 25% Amid 'Cloudy' Economic Outlook

In the face of economic uncertainty, UBS Global Wealth Management has revised its U.S. recession odds from 20% to 25%. This adjustment comes on the heels of softening job growth and unsettling July unemployment data.

What Happened: UBS Global Wealth Management increased its recession odds due to perceived economic fragility. This decision follows the trend of softer jobs growth and July’s unemployment data, which has amplified fears of an economic downturn, Reuters reported on Tuesday.

Despite the revised odds, the brokerage continues to anticipate a soft landing for the economy, with consumer spending largely steering the growth trajectory. However, it described the economic outlook as “cloudy.”

Last week, the U.S. Department of Labor reduced its estimate for total payroll employment by 818,000 for the period from April 2023 to March 2024. This suggests that U.S. employers added significantly fewer jobs than initially reported in the year through March.

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This follows the U.S. unemployment rate’s increase to a near three-year high of 4.3% in July, amid a significant slowdown in hiring. This has ignited fears of a deteriorating labor market, potentially making the economy susceptible to a recession.

Expectations for a rate cut of up to 50 basis points in the September meeting of the U.S. Federal Reserve have increased, with Chair Jerome Powell indicating last Friday that the “time has come” to reduce rates.

“Continued income growth will be critical to keep spending rising, since a steady savings rate is probably the best we can hope for,” said Brian Rose, senior U.S. economist at UBS, referring to the depletion of excess savings accumulated during the pandemic.

Why It Matters: This development comes amidst a series of warnings about a potential recession. J.P. Morgan Research indicated a 35% probability of a U.S. and global recession in 2024 due to signs of weakening economic growth and a softer labor market.

In contrast, Goldman Sachs lowered its 12-month recession probability to 20%.

Furthermore, BCA Research warned of an impending U.S. recession, asserting that anticipated Federal Reserve rate cuts will not prevent it. The U.S. Labor Department reported a rise in the unemployment rate to 4.3% in July, the highest since October 2021.

Finally, Powell is expected to signal an impending shift towards easing monetary policy after more than two and a half years of aggressive monetary tightening.

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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari