"U.S. Recession by Early 2025"

There are high odds the U.S. economy could be in recession by 2025, according to a new assessment by BCA Research.

As a result, the independent research provider says investors should consider underweighting "risk-assets on a cyclical investment horizon".

The call comes after U.S. retail sales grew "a mere" 0.1% m/m in May, short of the expected 0.3% monthly increase. BCA notes April’s nominal retail sales numbers were all revised lower to reflect deeper contractions than previously estimated.

"Overall, weak retail sales are consistent with a U.S. economy that is losing momentum. The three consumption supports are receding. Continued labour market softening is pointing to further deceleration in compensation growth. Meanwhile, the pandemic-era excess savings are dwindling and banks have tightened their consumer lending standards," says BCA Research.

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Economists note the U.S. manufacturing sector is still showing signs of life (industrial and manufacturing output as well as capacity utilisation all beat expectations in May), and the housing market remains resilient despite the monetary tightening cycle.

However, "we believe they will not compensate for the loss of momentum in consumption. "Wealth effects from housing (and stock prices) are muted and consumption accounts for two-thirds of the economy."

Economists at the company now assign "high odds to a U.S. recession by early 2025."

They say investors should underweight risk-assets on a cyclical investment horizon. BCA's U.S. and Global Investment strategists remain tactically neutral but have equities on a downgrade watch.