Recession In 2019? Prognosticators A Bit More Nervous In Late 2018

Employers are hiring and properties are still being developed at a robust pace while construction spending is stronger than a year ago. So are there any signs of a recession in the near future? Probably not, according to economists — but they still see a recession as more of a possibility than they did as recently as early this year.

For instance, JP Morgan economists, writing in a research note, see a 35% chance of a recession next year, which is nearly the highest probability in the current cycle, and up from 16% in March, Bloomberg reports.

Some of the inklings of a possible recession include a small uptick in initial jobless claims and the recent yield curve inversion. The inversion, which occurs when rates on short-term debt securities rise above that of long-term securities, is considered by many economists as a harbinger of a downturn.

"We think [the inversion] supports our late cycle view and growing risk of an earnings, if not economic, recession next year," Morgan Stanley's Michael Wilson wrote, CNBC reports.

On the other hand, inversions are a “flawed crystal ball,” UBS Global Wealth Management Chief Investment Officer Mark Haefele wrote in a recent note, Bloomberg reports. 

There has also been a weakening in business sentiment, but it is fairly slight. Fifty-seven percent of nonmanufacturing supply management executives expect their 2019 revenues to be greater than in 2018, according to the Institute for Supply Management's latest semiannual survey.

However, nonmanufacturing supply management executives currently expect a 3.7% net increase in overall revenues for 2019 compared to a 4.5% increase reported for 2018 over 2017 revenues. 

Despite the dislocations caused by tariffs, expectations for 2019 are positive in manufacturing, reports the ISM, as 64% of survey respondents expect revenues to be greater in 2019 than in 2018. 

Moreover, the respondents expect a 5.7% net increase year over year in overall revenues for 2019, compared to a 5.1% increase in 2018.

Not everyone is that optimistic. “I think it’s possible we are already in a recession,” Core Spaces Chief Investment Officer John Wieker said at a Bisnow event last week.

“I think it’s still possible that it may not come in a few more years. I think it’s coming sooner rather than later and you’re starting to see the market begin to underwrite that," Wieker said.