Mark Zandi has added oil prices to his list of concerns that the US could be barreling toward a downturn.
The Moody’s chief economist previously told Business Insider that he saw the threat of economic recession for the US as increasingly likely. Now, he believes that the threat is rising, largely due to the convergence of two key economic forces.
A strong upward move in oil prices since the Iran war began has led other economists to voice concerns about the economy recently, and Zandi highlighted the weakening US labor market as a bearish force that could be exacerbated by the latest energy volatility.
“Recession is once again a serious threat,” he wrote in an X thread this week. “Even before the recent disconcerting events in the Middle East, our machine learning based leading economic indicator model put the probability of a recession starting in the next 12 months at an uncomfortably high 49%.”
Mark Zandi/Moody’s Analytics.
The economist added that the most recent spike in recession odds is primarily due to labor-market conditions. Following the release of the January jobs report, Zandi noted that while the figures came in above expectations, they weren’t likely to last.
But his most recent statements also make it clear that he views the oil price volatility as a force that could accelerate an economic downturn.
“It isn’t a stretch to expect the indicator to cross the key 50% threshold amid the Iranian conflict and the resulting surge in oil prices,” he said. “Oil prices are an important variable in the model, and with good reason: every recession since WWII, save the pandemic recession, has been preceded by a spike in oil prices.”
Zandi added that the country can weather high oil prices, as the US produces as much as it consumes. However, he highlighted that consumers will still feel the impact. Indeed, gas prices are surging throughout the US, with the average price reaching $3.63 per gallon on Friday, up from $2.91 one month ago.
“If oil prices remain elevated for much longer (weeks and not months), a recession will be difficult to avoid,” he wrote.
