Swiss financial institution UBS has raised the likelihood of a U.S. recession.
UBS Global Wealth Management revised its probability of a U.S. recession from 20% to 25%, citing weaker job growth and July unemployment rate data.
The firm noted that although the economy has managed a soft landing thanks to steady consumer spending, the future economic outlook remains uncertain.
Earlier this month, JPMorgan increased its forecast for a U.S. recession to 35% by the end of the year, pointing to easing labor market pressure.
Last week, the U.S. Department of Labor revised its total payroll employment estimate down by 818,000 jobs for the period from April 2023 to March 2024. This indicates that U.S. employers added significantly fewer jobs than initially reported through March.
The increased recession risk is due to a sharp slowdown in employment growth and the U.S. unemployment rate rising to 4.3% in July, the highest level in three years. This has sparked concerns that the labor market is deteriorating and the economy may become more vulnerable to a recession.
Meanwhile, expectations for a rate cut have increased after Federal Reserve Chair Jerome Powell indicated in his Jackson Hole speech last Friday that “the time to lower rates has come.” The market anticipates a potential rate cut of up to 50 basis points in the Federal Reserve’s September meeting.
UBS Senior Economist Brian Rose commented that sustained income growth will be essential for maintaining spending as the excess savings accumulated during the pandemic are being depleted. He added that maintaining a steady savings rate may be the best outcome to hope for.
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