A new probability model released by Bank of America Merrill Lynch this week shows the probability of a double-dip recession is above 80 percent. The study shows a number of debt and financial issues in the United States and around the world are having an impact on the economy.
Probability Model Shows High Chance of Double Dip
The probability model used by Bank of America relied heavily on readings from the Philadelphia Federal Reserve and the University of Michigan. According to the Philly Fed, the possibility of a U.S. recession in the next year is a whopping 85.7 percent.
When the probability model looked at data from a Thomson Reuters/University of Michigan survey, it found that the likelihood of a recession was 80 percent.
Even more, the latter survey revealed that consumer confidence is at its lowest level since May 1980.
While some experts have disputed the strong possibility of a double-dip recession, both surveys have reasonable track records. The Philly Fed has accurately forecast four of the last seven recessions while the University of Michigan has accurately signaled three.
U.S. Debt Downgrade Impacting Economy
According to the report, there are a number of factors impacting the economy in such a way that we could see another recession in the near future. Some of these issues include the U.S. debt downgrade and European debt issues.
Also, the study mentioned that world stock market volatility–the result of financial issues around the globe–could push the U.S. back into a recession.
Though the economic team released preliminary data, it warned that more information needs to be gathered for it to raise its overall official prediction of a recession, which now rests at 40 percent.
As for now, the model serves as a ‘first alert’ of sorts to put the word out the recession is possible. It says it will still take some time to confirm its concerns.
