Is the San Francisco Fed forecasting a recession?

Neither the Federal Reserve Board in Washington, nor any of the regional Federal Reserve banks is officially forecasting a recession any time in the next year, but an economic research "letter" published by three Fed economists (two from the San Francisco Fed and one from the Kansas City Fed) was published on Monday which in fact says that "forecasts suggest that the probability of a U.S. recession has remained elevated and may have increased over the past year", and in particular that "the odds are greater than 50% that we will experience a recession sometime early in 2012."

 

My reading of their chart shows a peak of about 54% right at the beginning of the year and at or above 50% from about October 2011 through March 2012. That early recession risk is driven in large part by the international (European) risks. Based on only domestic risks their chart shows a peak risk of about 27% from February 2012 through August 2012.

 

They do offer some good news, namely that "if we navigate the storm through the second half of 2012, it appears that danger will recede rapidly in 2013."

 

All in all, I would say that they are not "clearly" forecasting a recession, but simply giving people cover for saying that we have elevated risks for a recession. But, given the risk above 50%, their results indicate that a recession is more likely than not, assuming that contagion from Europe does in fact drag down the U.S. economy significantly.

-- Jack Krupansky