Goldman Sachs has revised its outlook on the U.S. economy, reducing the probability of a recession to 20%, down from a previously raised estimate of 25%. This adjustment comes as recent labor market data suggests that the U.S. economy remains more robust than initially feared.
Earlier this month, Goldman Sachs economists had increased their 12-month U.S. recession probability from 15% to 25%, following the release of the U.S. July jobs report on August 2. The report revealed nonfarm payrolls grew by just 114,000, significantly below the Dow Jones estimate of 185,000 and the downwardly revised 179,000 in June. The disappointing numbers raised concerns about the strength of the world’s largest economy and led to a brief but sharp sell-off in the stock market.
The July jobs report also triggered the “Sahm rule,” an early recession indicator that signals the initial phase of a recession when the three-month moving average of the U.S. unemployment rate rises at least half a percentage point above its 12-month low. Goldman Sachs initially cited this as a key reason for increasing its recession probability.
However, in a note issued on Saturday, Goldman Sachs changed its stance, lowering the recession probability to 20%. The bank pointed to more recent data, including a 1% rise in July retail sales—far exceeding the estimated 0.3%—and lower-than-expected weekly unemployment benefit claims, as evidence that the economy is not on the brink of a downturn.
“Continued expansion would make the U.S. look more similar to other G10 economies, where the Sahm rule has held less than 70% of the time,” Goldman Sachs economists explained. They noted that several smaller economies, including Canada, have seen significant increases in unemployment rates during the current economic cycle without entering a recession.
Claudia Sahm, the chief economist at New Century Advisors and creator of the Sahm rule, commented that while she does not believe the U.S. is currently in a recession, further weakening of the labor market could push the economy into one.
Goldman Sachs economists indicated that a strong jobs report on September 6 could likely result in the bank cutting its recession probability back to 15%, where it had been for nearly a year before August. They also suggested that unless another disappointing jobs report emerges, Goldman Sachs is likely to maintain its forecast for a 25-basis-point rate cut at the Federal Reserve’s September meeting, rather than a more aggressive 50-basis-point reduction.
Markets have already priced in a Fed rate cut in September, but the odds of a 50-basis-point cut have decreased to just 28.5%, according to CME’s FedWatch tool. Rashmi Garg, a senior portfolio manager at Al Dhabi Capital, shared her outlook on CNBC’s “Capital Connection,” stating she expects a 25-basis-point cut, “unless we see a sizeable deterioration in the labor market in the September 6 jobs report.”
(Source:www.fxstreet.com)
Earlier this month, Goldman Sachs economists had increased their 12-month U.S. recession probability from 15% to 25%, following the release of the U.S. July jobs report on August 2. The report revealed nonfarm payrolls grew by just 114,000, significantly below the Dow Jones estimate of 185,000 and the downwardly revised 179,000 in June. The disappointing numbers raised concerns about the strength of the world’s largest economy and led to a brief but sharp sell-off in the stock market.
The July jobs report also triggered the “Sahm rule,” an early recession indicator that signals the initial phase of a recession when the three-month moving average of the U.S. unemployment rate rises at least half a percentage point above its 12-month low. Goldman Sachs initially cited this as a key reason for increasing its recession probability.
However, in a note issued on Saturday, Goldman Sachs changed its stance, lowering the recession probability to 20%. The bank pointed to more recent data, including a 1% rise in July retail sales—far exceeding the estimated 0.3%—and lower-than-expected weekly unemployment benefit claims, as evidence that the economy is not on the brink of a downturn.
“Continued expansion would make the U.S. look more similar to other G10 economies, where the Sahm rule has held less than 70% of the time,” Goldman Sachs economists explained. They noted that several smaller economies, including Canada, have seen significant increases in unemployment rates during the current economic cycle without entering a recession.
Claudia Sahm, the chief economist at New Century Advisors and creator of the Sahm rule, commented that while she does not believe the U.S. is currently in a recession, further weakening of the labor market could push the economy into one.
Goldman Sachs economists indicated that a strong jobs report on September 6 could likely result in the bank cutting its recession probability back to 15%, where it had been for nearly a year before August. They also suggested that unless another disappointing jobs report emerges, Goldman Sachs is likely to maintain its forecast for a 25-basis-point rate cut at the Federal Reserve’s September meeting, rather than a more aggressive 50-basis-point reduction.
Markets have already priced in a Fed rate cut in September, but the odds of a 50-basis-point cut have decreased to just 28.5%, according to CME’s FedWatch tool. Rashmi Garg, a senior portfolio manager at Al Dhabi Capital, shared her outlook on CNBC’s “Capital Connection,” stating she expects a 25-basis-point cut, “unless we see a sizeable deterioration in the labor market in the September 6 jobs report.”
(Source:www.fxstreet.com)
