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.”
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.