Recession Predictions, One by a Robot, Temper CEO Bullishness

While many CEOs hold bullish growth expectations, recession fears still bubbling under the surface have been stoked by a couple of new predictions. One has been issued by an investment bank. The other by a robot.

In a recent client note, Goldman Sachs economists predicted a 31% chance of a recession in the next nine quarters. They defined a recession as one quarter of negative growth.

The robot concurred, at least on time. Developed by economics and data science firm Intensity Corporation, the machine learning “forecasting engine” has most recently scheduled a recession for April, 2019.

Any number of recent CEO surveys have demonstrated a growing air of confidence, underpinned either by the economic recovery underway since the end of the financial crisis, or optimism that Donald Trump will execute on his pro-growth agenda.

“CEOs ranked a global recession as their number one fear, ahead of more than a dozen other factors such as talent shortages, wage inflation and cyber crime.”

Business leaders, however, are still wise to the risks: 555 of them recently polled by peer group The Conference Board ranked a global recession as their number one fear, ahead of more than a dozen other factors such as talent shortages, wage inflation and cyber crime.

CEOs who have been a little more cautious on the outlook include BlackRock’s Larry Fink. The funds management kingpin fears the stock market has gotten ahead of itself because there’s still too much uncertainty over whether the president will get tax, regulatory and infrastructure reform bills through Congress.

JPMorgan Chase’s Jamie Dimon, meanwhile, has been more sanguine, indicating that it’s not unusual for a new administration to encounter a few bumps in the road and that its prevailing pro-growth attitude will ultimately help corporate America.

The Goldman Sachs prediction wasn’t all bad news, however. Although the bank’s economists believe the likelihood of a recession has grown, they still see a strong chance the U.S. economy will experience its longest recovery on record.

The current expansion, at 95 months, is the third-longest on record, behind 120 months between March 1991 to March 2001 and 106 months from February 1961 to December 1969.

The economists aren’t so much afraid of demand fading away. Instead, they contend that unemployment rates are so low there’s a danger the economy will overheat. “The most obvious way to keep risk from rising much further would be a slowdown of output and employment growth to a trend pace before too long,” they wrote. That would require the Federal Reserve to step in with more interest rises than the market is currently expecting.

The robot, meanwhile, provides a forecast that relies on “continual model updating,” as well as “continual model selection and model combination,” its creators told Seeking Alpha. It takes real-time data and various models and combines them to figure out the most likely outcome in a given situation.

The forecast is regularly updated based on changing conditions and can be checked on Intensity’s website here.