BBVA Compass economists: Risk of U.S. recession is highest since '09, but still unlikely for 2016

The economists say in their latest report that the outlook for U.S. growth will be nuanced given the tumult in commodity markets. The U.S. has a 23 percent probability of recession as of the first quarter of 2016, the highest since 2009, writes BBVA Compass Senior Economist Boyd Nash-Stacey, and that probability leaps to 86 percent for oil-dependent areas. But those oil-dependent states account for only 11 percent of U.S. GDP, however.

"This helps explain why, despite a severe contraction in these states, the impact to aggregate U.S. output is not significant," writes Nash-Stacey, the author of the report. "Based on a state-by-state assessment, we expect growth to be positive in 2016, and thus broader risks of recession to remain low for the entire country."

In fact, low oil prices should positively influence U.S. growth in 2016 since most states are net importers of crude, Nash-Stacey said. States that have fared particularly well include California, Oregon, Washington, Florida and Georgia. Other areas will benefit from low oil prices, said Nash-Stacey, but the West Coast and Southeast are poised to be the brightest spots in the U.S. economy in 2016.  

The overall environment, said Nash-Stacey, is most similar to 1986, when the U.S. grew 3.5 percent year over year despite the severe downturns in commodity-rich areas. He identified 14 states that have a higher than 50 percent probability of recession, all of which have exposure to some combination of oil and gas, commodities or manufacturing. They are: Alaska, Alabama, Iowa, Kentucky, Louisiana, Massachusetts, Minnesota, North Dakota, New Mexico, Ohio, Oklahoma, Texas, West Virginia and Wyoming.

Texas accounts for more than 80 percent of the GDP of oil-dependent states, and the BBVA Compass Economic Research team has said the state will likely experience a mild recession this year before returning to positive growth in 2017. That will limit the overall impact on the U.S. economy, Nash-Stacey says, reducing overall GDP growth by less than .1 percentage point. 

Other findings from the report, "Back to the Future: 2016 Growth to Mirror 1986 Regional Decoupling":

• Since 1981, states have experienced 201 recessions — an average of four apiece.
• West Virginia, which is highly exposed to commodity cycles and industrial manufacturing, has experienced the most recessions (10), while Alaska had the fewest (2).
• The picture in Michigan is bleak: It has been in recession for 34 out of past 40 quarters.
• Oil prices declined 58 percent in 1986 vs. 71 percent in 2016.
• Washington state is poised to have the highest GDP growth in 2016 at 3.7 percent, followed by Utah (3.6 percent) and Florida (3.4 percent).

The report can be found here: https://goo.gl/EQwPAH.

Led by BBVA Compass Chief Economist Nathaniel Karp, the bank's research team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The economic research team also follows a variety of issues that affect the Sunbelt states where BBVA Compass operates.  Any statement or opinion of a BBVA Compass economist is that economist's own statement or opinion and does not represent a statement or prediction by BBVA Compass, its parent companies or management.

Follow their work on Twitter @BBVAResearchUSA and @BBVACompassNews.

About BBVA Group

BBVA Compass is a subsidiary of BBVA Compass Bancshares Inc., a wholly owned subsidiary of BBVA (NYSE: BBVA) (MAD: BBVA). BBVA is a customer-centric global financial services group founded in 1857. The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt region of the United States. Its diversified business is geared toward high-growth markets and relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a long-term vision and applies the best practices. The Group is present in the main sustainability indexes. More information about the BBVA Group can be found at bbva.com.

About BBVA Compass

BBVA Compass is a Sunbelt-based financial institution that operates 666 branches, including 340 in Texas, 89 in Alabama, 73 in Arizona, 61 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico, and commercial and private client offices throughout the U.S. BBVA Compass ranks among the top 25 largest U.S. commercial banks based on deposit market share and ranks among the largest banks in Alabama (2nd), Texas (4th) and Arizona (4th). BBVA Compass recently earned top nods for best mobile app and best regional bank in the South & West in Money magazine's annual list of the Best Banks in America. Additional information about BBVA Compass can be found at bbvacompass.com, by following @BBVACompassNews on Twitter or visiting newsroom.bbvacompass.com. 

Editor's Note:
BBVA Compass is a trade name of Compass Bank.

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