‘Flashing yellow’: US facing 1 in 3 chance of recession within the year, says Bank of America

Bank of America has warned the US economy has nearly a one-in-three chance of being plunged into a recession within the year as the trade war with China heats up and interest rate tweaks fail to soothe a troubled market.

Discarding an “official model” predicting “only” a one-in-five chance of economic doom within the coming year, Bank of America’s US economics head Michelle Meyer warned clients on Friday that the bank’s “subjective call based on the slew of data and events leads us to believe it is closer to a 1-in-3 chance.”

The resurgence of the US-China trade war, whose latest victims – American farmers – have already been devastated by a growing season plagued by flooding and droughts, and a “global economic slowdown” have set several economic indicators “flashing yellow,” Meyer said in a note to clients on Friday. Auto sales, industrial production, and total hours worked – three of the five indicators the bank uses to track business cycles – are at levels seen immediately prior to previous recessions.

Meanwhile, consumer prices surged 2.3 percent in the first six months of 2019, the fastest such rise in years – an increase retailers are blaming on the trade war. With another round of 10 percent tariffs set to be imposed on $300 billion worth of Chinese goods next month, prices are sure to keep creeping up. 

Jobless claims remain low, a factor Meyer highlighted as a “bright spot,” though President Donald Trump himself has highlighted the ease with which jobs numbers can be manipulated. Americans are not counted as unemployed if they’ve given up seeking work, if they’ve never been employed, or if they’ve received payment for even an hour’s work during the reference period but lack regular employment. In 2015, when Barack Obama was touting his 5.6 percent unemployment rate, Trump declared the “real” numbers were closer to 20 percent. Now trumpeting his own administration’s 3.7 percent unemployment rate, he can safely ignore that the labor force participation rate is at its lowest since 1977, at just 62.7 percent. Unofficial calculations put the realistic unemployment rate above 13 percent. 

More than 10 years after the 2008 recession, many families have not recovered, even as banks’ profits have rebounded and even surpassed their pre-crash levels. The US economy has reached rates of inequality not seen since the Great Depression – but you’d be hard-pressed to find government sources willing to admit this. US President Donald Trump has tied his presidency’s success to the stock market, which was thriving at the start of his reign even as average Americans continued to struggle. Now it, too, is starting to stumble – the Dow Jones Industrial Average plunged more than 400 points on Monday, recovering slightly to close down 1.5 percent from Friday. Bank of America’s shares themselves were down 2.5 percent.

And Bank of America’s Meyer is irrationally optimistic, according to the predictions of competitor Morgan Stanley. Chetan Ahya, that firm’s chief economist, predicts a global recession within three quarters if the trade war continues to escalate. But the trade war could merely be the catalyst for a catastrophe that has been a long time in the making – former Federal Reserve chair Janet Yellen has warned of a coming financial crisis due to ballooning corporate debt and regulatory incompetence since December, and she is far from alone. While the US' national debt has repeatedly reached record highs, cracking $22 trillion earlier this year, global debt has swelled sixty percent since 2007, surpassing the truly eye-popping figure of $184 trillion last year.

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