President Donald Trump’s u-turn on Liberation Day tariffs may have spared the U.S. economy from a hard landing, but UBS warns that recession risks are climbing once again, backed by a cocktail of hard data, rates, and credit signals.
“Our hard data model points to a recession probability of 46%,” UBS economists wrote, noting that April saw a broad-based weakening across the key components that consistently lead the business cycle.
After showing signs of stabilization earlier in the year, UBS’s hard data factor—which tracks production, employment, capex, housing, income, and spending—took a notable leg down in April. The indicator, which has a track record of turning negative before official recessions, “increased 12 percentage points in April," UBS analysts said in a recent note. The analysts cautioned, however, that some volatility could be linked to tariff pull-forward effects, but emphasized that the weakness was “widespread across the factor components.”
The yield curve signal, another closely watched recession gauge, has also started to flare up again after fading at the start of the year. “The yield curve model points to a recession probability of 18%,” UBS said, up from earlier in the year but not yet at crisis levels.
Credit conditions, meanwhile, are flashing even greater caution. “The credit metric-based recession probability model points to 48%,” UBS said, its highest reading since the pandemic, reflecting a recent jump in financial fragility.
Taking all three indicators together, UBS’s aggregate recession probability now sits at 37%, a jump of 11% since the December low of 26% and a level “consistent with pre-recessionary developments.”
While the economy was on “okay footing” at the start of the year, the analysts warned that “data deterioration could bring back discussion of recession risks. Odds may be low now, but if the data continues to weaken, the odds, and the narrative in financial markets, might become more worrisome.”
Source: Investing