Goldman Sachs has revised its US recession forecast, lowering the probability of a recession within the next 12 months to 20%. This change comes just two weeks after the investment bank increased the odds from 15% to 25% following a weaker-than-expected July jobs report.
The data released since August 2 shows no sign of recession, according to Goldman Sachs economist Jan Hatzius. The non-manufacturing ISM index for July rebounded, with its employment component entering expansion territory for the first time since November 2023. Retail sales in July exceeded expectations, indicating a robust gain in real consumption. Additionally, initial jobless claims declined over the past two weeks, suggesting that the previous rise in claims may have been influenced by temporary factors such as weather and residual seasonality.
Hatzius stated that the reassuring news on economic activity, layoffs, and financial conditions deserves some weight in assessing whether the July jobs report was an indication that recession is starting or just one weak print. If the upcoming August jobs report shows strength, Goldman Sachs might lower its recession probability estimate further, potentially back to 15%.
The bank also weighed in on the Federal Reserve’s monetary policy, expressing increased confidence in its forecast for a 25-basis-point rate cut at the September 17-18 FOMC meeting. However, it does not dismiss the possibility of a 50-basis-point cut if the August jobs report again disappoints.
With inflation very benign and the labor market fully rebalanced, Goldman Sachs believes that a 5¼-5½% policy rate—now the highest across the G10—is excessive. The bank suggests that Fed officials can provide nearly as much accommodation by signaling a longer series of 25-basis-point cuts as they could with a single 50-basis-point reduction.
Source: https://www.benzinga.com/economics/macro-economic-events/24/08/40439485/goldman-sachs-cuts-us-recession-odds-to-20-reverses-earlier-increase-as-economic-