ClearBridge forecasts 75% likelihood of Q3 US recession
Asset manager ClearBridge’s proprietary risk dashboard has predicted a 75 per cent probability of a recession in the US.
The ClearBridge Investments recession risk dashboard utilised key indicators on a monthly basis to assess the US economy and its impact on equity markets.
According to Jeff Schulze, US-based director and head of economic and market strategy at ClearBridge, the dashboard has seen continued deterioration since August 2022.
“We continue to believe that the third quarter of this year is when the rubber will hit the road,” he said.
The program’s leading economic indicator (LEI) would normally recognise four consecutive monthly declines as the “recessionary danger zone”. Alarmingly, the US had seen 12 consecutive monthly declines in a row.
“The only two times we’ve seen more than this was in the 1973 recession and in 2007. So, there’s a strong chance that a recession is on the horizon,” Schulze continued.
“The biggest drop in the LEI on a year-on-year basis before the recession happened was -5.7 per cent ahead of the 1980s downturn. Today, we’re well through that threshold at -7.8 per cent. The die is cast for recession in the second half of this year.”
Tightened lending standards in the US were on the horizon for consumers, particularly with smaller banks.
“Small banks play a big part in lending through about a quarter of consumer loans, two-thirds of commercial real estate loans and about 35 per cent of residential real estate and CNI loans overall.”
Although they represented 30 per cent of banking assets in the US, small banks constituted 37 per cent of lending and 57 per cent of the overall loan growth last year.
“If everybody believes a recession is coming, then it’s a self-fulfilling prophecy. Everybody hunkers down and spends a little bit less. Businesses don’t hire that marginal employee or invest for the future.”
AUTHOR
Jasmine Siljic
Recommended for you
Grant Hackett has been promoted from CEO of Generation Life to head up the wider Generation Development Group.
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
