Bank of America raises chance of a recession to 1-in-3 in the next 12 months
- Bank of America sees a greater than 30% chance of a recession in the next year, based on recent data.
- Some economic indicators are “flashing yellow,” signaling a coming recession.
- Head of U.S. economics Michelle Meyer says the “bright spot” of the economy is that initial jobless claims remain at low levels.
Recession risk is rising, according to Bank of America.
Based on the most recent data, the bank’s global economist now sees a greater than 30% chance of a recession in the next year.
“Our official model has the probability of a recession over the next 12 months only pegged at about 20%, but our subjective call based on the slew of data and events leads us to believe it is closer to a 1-in-3 chance,” Bank of America’s head of U.S. economics Michelle Meyer said in a note to clients Friday.
Uncertainty around the U.S.-China trade war and a global economic slowdown have caused interest rates to tumble and weighed on the major stock averages in recent weeks. Last month’s jobs report showed a strong consumer, but business investment is low as investors and business owners juggle new tariffs and fiscal policy uncertainty.
The countercyclical capital buffer would require banks to hold more capital should the economy show signs of overheating
WASHINGTON—Federal Reserve officials are weighing whether to use a tool that could reduce the risk of a credit crunch in a downturn.
The tool is known as the countercyclical capital buffer. It allows the Fed to require banks to hold more loss-absorbing capital should the economy show signs of overheating, or to keep less of it during bad economic times. The buffer applies generally to banks with more than $250 billion in assets, including firms such as JPMorgan Chase & Co., Bank of AmericaCorp. and Citigroup Inc.
The Fed’s board of governors so far hasn’t used the tool, approved in 2016. Its rule on the buffer says it should turn it up when economic risks are “meaningfully above normal” and reduced when they “abate or lessen.”
Now, some Fed officials are debating whether it is time to use the tool, which could provide banks with additional lending firepower in a subsequent downturn. It isn’t clear when they might make a decision.
Bankruptcy filings rising across the country and it could get worse
Bankruptcies are back — flashing warnings that more Americans are knee-deep in debt in big cities like New York.
While total bankruptcy petitions nationwide by consumers and businesses are still well below Great Recession levels, analysts say there is an unmistakable trend upward.
New York state’s bankruptcy filings, for instance, have risen steadily the past three years, hitting 34,711 in 2018, up from 30,112 in 2016, according to the American Bankruptcy Institute (ABI), based on data from Epiq Systems.
More consumers nationwide are falling behind on their payments and filing for bankruptcy to resolve overwhelming debt loads. And low unemployment, an uptick in average wages and the latest Fed interest rate cut have not restrained the debt monster. Some cash-strapped consumers are even finding relief at food pantries.
“In high-cost cities like New York, personal incomes are not often enough to pay the household bills,” Zac Hall, vice president of anti-poverty programs at the Food Bank of New York, told The Post. “We are seeing people using consumer debt as a way to make ends meet when they come here,” he added, citing the pressures his nonprofit faces to keep up the distribution of food and meals at no cost to some 1.5 million New Yorkers.
And unmanageable debt is also forcing more companies to file for bankruptcy, triggering a wave of job cuts — with nearly 43,000 job losses announced in the first seven months of this year, according to a new report by Challenger, Gray & Christmas. It’s almost 20 percent more than all bankruptcy-linked job cuts in 2018. In the latest example, last week Barneys New York said it had filed for Chapter 11 bankruptcy protection.
According to data released last week by the ABI, US bankruptcy filings surged by 3 percent in July 2019 from July 2018. A total of 64,283 filings were reported for July, up from 62,241 for July 2018. And if the trend continues, this year’s overall total of bankruptcies is on pace to hit 796,000, far exceeding the 777,000 for last year.
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