The US economy has high chances of plunging into recession and suffering “total organ failure” in a year, in keeping with Russell Investments.
There’s a 32% chance of a US recession in 12 months, up from 20% three years ago, following the asset manager’s Business Cycle Index model. The possibility of a contraction has now passed its warning threshold and should be taken seriously, the report mentioned.
The higher threat of contraction reflects the latest inversion of the 10-year and three-month US Treasury yield curves, which preceded a recession by an average of one year in the past five economic cycles, mentioned Kara Ng, a quantitative investment strategist at Russell Investments.
There have additionally been signs of “cracks within the labor market” after US nonfarm jobs increased by 75,000 in May, less than half the expected quantity. If CEOs lose confidence due to concerns about the US-China trade war, the US-Iran dispute, slowing world growth, and other points, they may make investments and hire less, eating into consumer income and spending and sparking a recession.
“a few months ago, we have noticed slower global growth, lower CEO confidence, and lower capital expenditure,” Ng wrote. “If the labor market fails, this can be a path to total organ failure.”
Nevertheless, the risk of recession has not yet reached pre-financial crisis levels, the report mentioned. America’s financial growth may continue if the Federal Reserve cuts rates of interest twice and the macroeconomic backdrop does not worsen, it added.