UBS Global Wealth Management has raised the odds of a U.S. recession to 25 percent from 20 percent, citing weakness from softer job growth and July unemployment data that stoked recession fears.
In a note published on Monday, the brokerage maintained its base case of a soft landing for the economy, with consumer spending largely determining the trajectory of growth; however, it described the outlook as “cloudy.”
Earlier this month, JP Morgan raised the odds of a US recession by the end of the year to 35 percent, citing easing pressures in the labour market, while Goldman Sachs cut its probability of a recession in the next 12 months to 20 percent.
Last week, the U.S. Department of Labor lowered its estimate of total wage employment by 818,000 for the period from April 2023 to March 2024, meaning U.S. employers had added far fewer jobs than originally reported in the year through March.
This came shortly after the US unemployment rate jumped to a nearly three-year high of 4.3 percent in July amid a significant slowdown in hiring, raising fears that the labor market was deteriorating and potentially making the economy vulnerable to a recession.
Expectations of a rate cut of up to 50 basis points at the US Federal Reserve’s September meeting have risen, with Chairman Jerome Powell signaling in his speech at Jackson Hole last Friday that “the time has come” to cut rates.
Now that the excess savings built up during the pandemic have been exhausted, “continued income growth will be critical to sustaining spending growth, as a steady savings rate is probably the best we can hope for,” said Brian Rose, senior U.S. economist at UBS.
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