Recession odds hit highest level since 2011 as JPMorgan slashes GDP forecast

Posted on

In the wake of news that the Atlanta Federal Reserves widely watched U.S. GDP forecasting model had slashed fourth-quarter growth to a mere 0.6%, now comes an even worse downgrade, this from one of the worlds largest banks.

In the wake of dismal December retail-sales and other economic data, JPMorgan Chase has officially grown more pessimistic, slashing its fourth-quarter GDP projection to an annualized 0.1%, from a previous estimate of 1%, and lowered its first-quarter forecast by a quarter of a percentage point to 2%, The Wall Street Journal reported.

Weak retail forces downgrade: The exceptionally weak December sales figure is a bit of a head scratcher, chief U.S. economist Michael Feroli said. Job growth was booming last month, gas prices were down, sentiment measures were up, and warmer-than-normal winter temperatures prevailed last month, which historically tends to boost retail sales.

Chart US Quarterly GDP

If JPM is right, and if the U.S. economy effectively did not grow in the fourth quarter, this would make it the worst GDP print since Q1 of 2014, and tied for the third worst quarter since 2009, Zero Hedge commented.

Moreover, JPMorgan also is cutting its expectations for the first quarter of 2016. We are also lowering some our outlook for Q1 GDP growth from 2.25% to 2.0%, its analysts wrote. While the inventory situation should turn to being roughly neutral for growth, the quarterly arithmetic on consumer spending got a little more challenging after this mornings retail sales figure, which implies flat real consumer spending in December. We now see real consumer spending in Q1 at 2.5%, versus 3.0% previously.

Recession chances now at 28.2%: Although JPMorgans growth figures remain in positive territory, the potential for further downgrades is possible, while a new poll finds that recession odds are on the rise.

The chances of a recession in the United States are at their highest levels since the fall of 2011, according to the CNBC Fed Survey, the news company reported. The survey also showed recession fears rising for the sixth straight time among respondents, and are now sitting at 28.8%.

Complicating this picture of Americas slowing growth are ongoing concerns about China as well as worries about slumping oil prices, which could roil the junk-bond market further as well as the big banks, and the likelihood of another negative corporate earnings season. The prospect of four straight quarters of earnings declines is staring investors in the face on top of the worst multiweek selloff for stocks in years, and the worst start of the year ever, noted MarketWatch.

Barrons experts see low rates ahead: The upshot of all this is that the Fed likely will be forced to backtrack on it interest-rate hiking program. The new edition of Barrons Roundtable recently weighed in on the current environment and thinks the Federal Reserve, which finally lifted interest rates in December for the first time in seven years, wont hike four more times during 2016, notwithstanding its stated intentions, Barrons summarized. Thats because market conditions simply wont allow it. Indeed, Fed Chair Janet Yellen might even be forced to ease again after lifting rates one more time.

John Rubino of sees three possibilities for the Fed: 1) a new but modest round of QE; 2) an expansion of the existing QE program; or 3) a more ambitious and inflationary salvo that Rubino calls QE for the people, featuring negative interest rates, debt jubilees, and the helicopter money that Ben Bernanke long ago promised to use in case of full-blown deflation along with a nice selection of capital controls to keep unruly savers, investors and other enemies of society in line.

Under any of these scenarios, in which the Fed views its printing press as the solution to all economic problems, gold and silver bullion plus rare coins remain must-own assets for every portfolio.