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
The merger with L1 Capital will “inject new life” into Platinum, Morningstar believes, but is unlikely to boost Platinum’s declining funds under management.
More than half of the top 20 most popular shares bought by advised investors during the first half of 2025 were ETFs, according to AUSIEX data.
At least two-thirds of ETF flows are understood to be driven by intermediaries, according to Global X, as net flows into Australian ETFs spike 97 per cent in the first half of 2025.
Inflows for the first half of 2025 for GQG Partners stand at US$8 billion, but the firm has flagged fund underperformance could be a headwind for future flows.
