Goldman Sachs Lowers Probability of US Recession

Goldman Sachs (GS) has lowered the chances of the U.S. falling into a recession in the next 12 months to 20% from 25%, following reassuring data on the retail sales and jobless claims.

“We have now shaved our probability from 25% to 20%, mainly because the data for July and early August released since August 2 shows no sign of recession,” Chief Economist Jan Hatzius and other Goldman analysts wrote in a note on Saturday.

The Wall Street bank said that it had raised its probability of a U.S. recession to 25% from 15% after the July jobs report triggered the “Sahm rule,” an indicator that says the country is in a recession if the three-month moving average of the unemployment rate rises half a percentage point or more from its low point in the previous 12 months. 

The July unemployment rate, released Aug. 2, rose to 4.3% from 4.1% in June—its highest level since October 2021. But a monthly report on retail sales last week beat analysts’ forecasts and weekly jobless claims fell, allaying fears of a weakening labor market.

Goldman Expects 50-Basis-Point Rate Cut if August Jobs Has ‘Downside’ Surprise

Goldman said that if the August jobs report, due Sept. 6, “looks reasonably good,” it would cut its recession probability to 15%, where it sat for a year until the Aug. 2 unemployment data was released.

The analysts said they “have become more confident” in their forecast of a 25-basis-point cut in interest rates by the Federal Reserve at the Federal Open Market Committee (FOMC) meeting Sept. 17 and 18, although it noted a “downside jobs surprise on September 6 could still trigger a 50bp move.”