Forecasting The Next Recession
Investing in the right asset classes & sectors at the right stage in the business cycle is one of the most important drivers of performance for investors. The same is true by knowing which asset classes and sectors to avoid and when. What’s more, this “timing factor” may indeed have the greatest impact on your financial future. While predicting market downturns and recessions may be a challenge, it is possible to get an early read on forecasting the next recession by analyzing historical data and late-cycle patterns of key economic and market indicators.
The current analysis, as of April 10th 2018, suggests no immediate recession in the next 6 months. However, it is possible that we experience a market-driven sell-off in the next 6 months. Looking out 12 months and beyond, the probability of a recession increases, with an above-average probability occurring in 18 months – 36 months.
1. GDPNow Forecast
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 2.3 percent on April 5, down from 2.8 percent on April 2. The nowcast of the contribution of inventory investment to first-quarter real GDP growth fell from 1.21 percentage points to 1.05 percentage points after yesterday’s manufacturing release from the U.S. Census Bureau and yesterday’s light vehicle sales release from the U.S. Bureau of Economic Analysis (BEA). The nowcast of the contribution of net exports to first-quarter growth declined from -0.65 percentage points to -0.72 percentage points after this morning’s international trade release from the Census Bureau and the BEA. The nowcast of first-quarter real consumer spending growth fell from 1.6 percent on April 2 to 1.3 percent this morning.
Source: Federal Reserve, St. Louis Federal Reserve, Atlanta Federal Reserve, US Treasury & U.S. Bureau of Economic Analysis