UBS Global Wealth Management has increased its estimate of a U.S. recession risk to 25% from 20%, citing concerns over weakening labor market indicators, particularly softer job growth and July’s unemployment figures. These developments have heightened fears of an economic downturn.

Despite this adjustment, UBS still maintains a base case for a soft landing for the U.S. economy, with consumer spending playing a pivotal role in shaping growth. However, the brokerage described the economic outlook as “cloudy.”

Earlier this month, J.P. Morgan raised its recession probability for the year-end to 35%, pointing to easing labor market pressures, while Goldman Sachs took a more optimistic view, lowering its recession forecast for the next 12 months to 20%.

The U.S. Department of Labor recently revised its estimate of total payroll employment downward by 818,000 for the period from April 2023 to March 2024. This revision suggests that U.S. employers added far fewer jobs than initially reported in the year through March, adding to concerns about the strength of the labor market.

Adding to the uncertainty, the U.S. unemployment rate rose to a nearly three-year high of 4.3% in July, signaling a significant slowdown in hiring and raising fears that the labor market is deteriorating, potentially making the economy more vulnerable to a recession.

As a result, expectations for a rate cut of up to 50 basis points at the U.S. Federal Reserve’s September meeting have increased. Federal Reserve Chair Jerome Powell indicated in his recent speech at Jackson Hole that the time might be approaching to reduce rates.

With excess savings from the pandemic being depleted, “continued income growth will be critical to keep spending rising, since a steady savings rate is probably the best we can hope for,” said Brian Rose, senior U.S. economist at UBS.

(Adapted from AOL.com)

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