Bofa/Merrill: Chances Of Recession Are Above 80%# Stock
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According to a report from Bank of America's Merrill Lynch that was released
on Wednesday, their model puts the chances of the U.S. falling into
recession above 80%. This varies widely from other economists such as the
Fed's Thomas Hoenig, who on Thursday told CNBC the chances of recession were
closer to 20%.
According to BofA/Merrill, the drivers behind the spike in the chances for
recession are the two most recent economic reports – the Philly Fed Index
and the University of Michigan's Sentiment Index – both of which have been
dismal.
Economists and Fed officials alike have warned that these surveys were both
taken during the heat of the most recent market turmoil and as such, should
be taken with a grain of salt. Kansas City Fed President Thomas Hoenig said
Thursday that he wants to see more data before sounding the alarm.
According the BofA's models, the Philly Fed report puts the probability of
recession at 85.7%, while the UofM reports suggests the chances of an
economic contraction at 80%.
The research report notes that the Philly Fed has successfully forecasted
four of the last seven recessions, while the UofM Sentiment data has called
three of the last eight.
Still, the research report was not completely downbeat. Michael Hanson, an
economist at BofA/Merrill wrote, "More timely consumer and business
sentiment indicators dropped in August in response to a range of bad news.
While we concede the risks are rising, a recession is not baked in the cake.
If the economy can avoid further shocks, we would expect a modest bounce in
growth into the end of the year."
on Wednesday, their model puts the chances of the U.S. falling into
recession above 80%. This varies widely from other economists such as the
Fed's Thomas Hoenig, who on Thursday told CNBC the chances of recession were
closer to 20%.
According to BofA/Merrill, the drivers behind the spike in the chances for
recession are the two most recent economic reports – the Philly Fed Index
and the University of Michigan's Sentiment Index – both of which have been
dismal.
Economists and Fed officials alike have warned that these surveys were both
taken during the heat of the most recent market turmoil and as such, should
be taken with a grain of salt. Kansas City Fed President Thomas Hoenig said
Thursday that he wants to see more data before sounding the alarm.
According the BofA's models, the Philly Fed report puts the probability of
recession at 85.7%, while the UofM reports suggests the chances of an
economic contraction at 80%.
The research report notes that the Philly Fed has successfully forecasted
four of the last seven recessions, while the UofM Sentiment data has called
three of the last eight.
Still, the research report was not completely downbeat. Michael Hanson, an
economist at BofA/Merrill wrote, "More timely consumer and business
sentiment indicators dropped in August in response to a range of bad news.
While we concede the risks are rising, a recession is not baked in the cake.
If the economy can avoid further shocks, we would expect a modest bounce in
growth into the end of the year."