Daily Management Review

Bloomberg economists assessed likelihood of US recession in 2020


Bloomberg experts published a report assessing the likelihood of a recession in the US economy in 2020. Although some indicators aroused concern among analysts, in general, the situation, in their opinion, does not look threatening.

Diariocritico de Venezuela via flickr
Diariocritico de Venezuela via flickr
The trade war with China, the reduction in hiring and investment, as well as the difficult situation in the manufacturing sector have raised concerns that the US economy is approaching a new recession. There were no recessions in the largest economy in the world for more than ten years after the global financial crisis of 2008.

Bloomberg analysts believe that the risk of a recession in the US in the next 12 months is 27%. This is more than it was in 2018, but less than before the previous crisis, the agency notes. The main harbinger of the past seven recessions was the spread between three-month and ten-year US government bonds, which fell below zero. The trajectory is the same for this year: the yield on three-month treasury bonds turned out to be higher than the yield on ten-year ones. But now, this figure may not be a reliable indicator of an approaching crisis, Bloomberg experts say. They pointed out that the negative effect of bond yields softened the quantitative easing of the Federal Reserve's (Fed) policy.

The growth of real wages also remains stable. Before the last recession, it showed a sharp drop due to reduced demand for labor. Growth is now maintaining a calm but healthy pace, analysts at Bloomberg say.

The concern is corporate profit. Profitability is declining, and companies will look for ways to lower costs. This can lead to reduced hiring or even layoffs. In turn, this will affect consumer spending, the main pillar of US economic growth at the moment.

The easing of monetary policy has a downside. Before the last recession, the Fed's key rate was about 5%, which left enough room to reduce the cost of loans and stimulate the economy. Now the rate is at the level of 1.75-2.0%. The Fed has already lowered the rate twice this year and, according to some analysts, could do it again on October 30th.

source: bloomberg.com