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Goldman Sachs has lowered its forecast for a potential US recession to 20%, following a reassessment prompted by the latest employment and retail trade data. The change comes after it raised its recession probability earlier this month, initially pegged at 25% due to disappointing job growth figures in early August.
Earlier, Goldman Sachs economic analysts had raised their recession risk estimates when the July jobs report showed nonfarm payrolls rose by just 114,000, significantly below expectations and down from the revised June figures. The disappointing report contributed to a temporary stock market downturn and raised alarms about the potential weakening of the U.S. economy.
However, recent data, including an unexpected 1% increase in July retail sales, which beat the 0.3% forecast, along with lower-than-expected weekly jobless claims, have provided a more optimistic economic outlook. These indicators have led to renewed market confidence, culminating in a strong recovery in global stock indices late last week.
Goldman economists noted that the improved data points suggest the U.S. economy could avoid a recession, aligning it more closely with other G10 economies where the Sahm rule, a predictor of recession, has been less reliable. Claudia Sahm, the economist for whom the rule is named and now at New Century Advisors, said in an interview with CNBC that she does not see the U.S. in a recession at the moment, although she cautioned that further weakening in jobs data could alter that outlook.
An upcoming jobs report due on September 6 is highly anticipated; a strong performance could further reduce the recession probability to 15%, returning to Goldman’s long-term view before the August adjustment. Conversely, a negative report could increase the likelihood of a more significant rate cut by the Federal Reserve at its next meeting in September.
Market participants, tracked by CME’s FedWatch tool, are already anticipating a September rate cut, with expectations for a broader reduction fading. Rashmi Garg, a senior portfolio manager at Al Dhabi Capital, echoed that sentiment on CNBC’s “Capital Connection,” predicting a 25-basis-point cut unless upcoming employment data worsens significantly.
This narrative of cautious optimism reflects the dynamic nature of economic forecasting and the crucial role that timely and accurate data plays in shaping market expectations and policy decisions.
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