CNBC: Merrill Lynch Pegs Probability of Double Dip Recession at 80%

A plunge in recent economic data puts the probability of a double-dip recession above 80 percent, according to modeling by Bank of America Merrill Lynch released Wednesday, reflecting the toll the U.S. debt downgrade, Europe’s woes and stock market volatility has taken on economic activity.

To be sure, the firm’s economic team warned more data is needed for it to raise its overall official prediction of a recession that high. Still, the recent dismal readings from the Philadelphia Federal Reserve and the University of Michigan were enough for Merrill to raise its overall probability of a contraction in the next year to 40 percent from 35 percent at the start of this month.

A survey of manufacturing in the Philadelphia region plunged to its lowest level since March 2009, according to the Fed last week. Consumer confidence is at its lowest level since May 1980, according to a Thomson Reuters/University Michigan survey released on August 12. A revision of this survey will be released Friday.

The Philly Fed puts a recession probability at 85.7 percent, while the consumer survey puts contraction chances at 80 percent, according to Bank of America’s probability model, which uses a so-called Bayesian technique that “tests if the economy is in a recession based on the interaction of variables that are associated with turns in the business cycle.”


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