Moody's Economist Flags Rising Recession Risk in the US

Moody's Chief Economist Mark Zandi has been sounding the alarm about a potential US recession for some time. Now, he suggests that a key indicator has pushed the recession probability to an "uncomfortably high" level. In August, Zandi described the US economy as being on the "precipice of recession." He reiterated this view in a subsequent interview, noting that the economy faces a critical juncture. But Zandi's latest forecast may be his most pessimistic yet. In a series of posts on X over the weekend, he shared his perspective on recent concerning economic data. Citing data from Moody's Analytics, Zandi said the risk of the US entering a recession in the next 12 months is now at 48%. "While this probability is less than 50%, historically, a recession has never failed to occur when the recession probability has reached such a high level," he wrote in his post. To support this point, Zandi provided further data on the decline in residential building permits – an indicator considered an important reference for predicting recessions.

Declining Housing Permits: A Warning Sign?

Although residential building permit data had previously remained stable, weakening buyer demand and an increasing number of unsold homes have led builders to scale back construction. As Zandi pointed out, this trend has brought the number of newly issued building permits close to the low levels seen during the pandemic. He added that the August residential building permit data will be released on Wednesday, coinciding with the Federal Open Market Committee (FOMC) announcement of its interest rate decision. He advised investors to monitor this upcoming report closely. "This data will certainly provide another reason for the Federal Reserve – to prove that it should and will announce an interest rate cut later that day," Zandi predicted. However, he has previously stated that even if the Federal Reserve chooses to cut interest rates as the market expects, this move may not be enough to avert an economic recession. It's important to understand that these forecasts are based on economic models and historical data, and should not be considered investment advice.

Understanding Economic Indicators and Recession Risks

Economic indicators such as housing permits, consumer confidence, and unemployment rates can offer insights into the health of the economy. A decline in housing permits, as highlighted by Zandi, can signal a slowdown in construction activity, potentially leading to reduced economic growth. It's crucial for individuals to stay informed about these indicators and understand their potential implications.

Disclaimer

This analysis is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.