Federal Reserve Bank of San Francisco: “Odds Are Greater Than 50% Chance Of A Recession In Early in 2012″

Well if your a believer in the recession is over and the economy if on the way to recovery, the Federal Reserve Bank of San Francisco in a post disagrees saying that the “Odds Are Greater Than 50% Chance Of A Recession In Early in 2012″

In its Economic Letter the two co-authors, one Travis J. Berge is an economist in the Research Department of the Federal Reserve Bank of Kansas City the other Early Elias is a research associate in the Economic Research Department of the Federal Reserve Bank of San Francisco.

There paper cites problems oversees as the major issue for another recession and while you should really go and check out the report here are some highlights.

“Since the summer of 2010, the situation on the ground has changed. ”

“Japan’s March 2011 earthquake and tsunami disrupted supply chains in the U.S. automobile industry far more than expected. ”

“Meanwhile, the deteriorating fiscal realities in Europe have been keeping many a trader awake at night, reliving the nightmare of the near-collapse of financial markets in the wake of the Lehman Brothers bankruptcy. The European situation was highlighted by the September 2011 release of the euro zone purchasing managers index data, which indicated that the manufacturing and services sectors contracted in August. Christine Lagarde, the IMF’s managing director, sounded the financial alarm by suggesting that European banks are in “urgent need of capital” in a speech on August 27 at the Federal Reserve’s Jackson Hole Economic Policy Symposium.”

“This Economic Letter revises the recession odds calculated in 2010 to account for these international factors.”

“Viewed through the domestic lens, the immediate risks of recession appear to be low, but gradually increasing. International risks, though less precisely measured, are the mirror image.”

“Risks are highest in the very short run, but then fade. In combination, the data suggest vigilance. ”

“The U.S. economy is fragile with limited ability to withstand shocks. Yet, as the economy strengthens, recession risks will gradually abate beginning in the second half of 2012.

“”In the next few months, the odds of recession due to domestic factors appear reasonably contained. Those odds increase gradually and reach about 30% in the second half of 2012, after which they decline. However, the curve reflecting the international odds suggests more imminent danger to the economy, although this threat is harder to calibrate using historical data and only indirectly reflects the health of the European financial system. Recession odds based on international factors peak at about 45% toward the end of 2011, but decline rapidly thereafter.”

Figure 2
Recession probability forecasts

Recession probability forecasts

“The combination of these two recession coins, shown in the combined risks line of Figure 2, is quite disconcerting. ”

“It indicates that the odds are greater than 50% that we will experience a recession sometime early in 2012.”

“Prudence suggests that the fragile state of the U.S. economy would not easily withstand turbulence coming across the Atlantic. A European sovereign debt default may well sink the United States back into recession. However, if we navigate the storm through the second half of 2012, it appears that danger will recede rapidly in 2013.”

Travis J. Berge is an economist in the Research Department of the Federal Reserve Bank of Kansas City.

Early Elias is a research associate in the Economic Research Department of the Federal Reserve Bank of San Francisco.

Comments

  1. Jack says

    What…. No talk of inflation?
    That money we printed will circulate into the system sooner or later. You cant just print money without having any effect on the economy.
    I wonder how devastating it would be if inflation took off right about the same time as a recession hit?

    Hmm…

  2. back in the real world says

    “Odds Are Greater Than 50% Chance Of A Recession In Early in 2012″

    I love economists.

    Unemployment in my country as well as yours is going to reach levels that may see social unrest the likes of which our kids and their kids may not live to see in their lifetimes.

    The unfortunate thing is that companies are absolutely flush with cash at this moment and yet they continue to cut jobs and hoard their money. On top of that you have pay cuts at the bottom end being justified because of the economy and executive commitees awarding pay rises to C suite individuals becuse of all the money they are saving through pay cuts! Utter utter madness.

    When the USSR fell it was put forward as proof positive that communism doesnt work. Back in the real world capitalism, as we know it, is only being sustained through communist China at this point in time.

    I will make more money next year than this year, I have no doubt, however there will be many people that lose their jobs homes etc etc.

    If our governments had any balls they would cut all types of exotic trading, ALL DEAD. They would ban short selling. They would ban high frequency trading which adds nothing (liquidity was never a problem before, this is a straw man). Me personally I would do all of this and ontop of that I would also make all positions have to last at least 3 months. The sole purpose of the stock market is to provide finance for companies, thats it. The whole system has been transformed into an ugly beast on the justification of our pension funds and your 401ks, its all BS. Strip the exchanges down to what they were built for in the first place and everyone will be better off in the long run as opposed to the few riping the Ar**hole out of it now.

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