Based on robust retail sales and reduced unemployment claims, Goldman Sachs reduced the probability of a U.S. recession in the coming year from 25% to 20%.
Goldman Sachs has recently revised its economic forecast for the United States, reducing the likelihood of a recession within the next year from 25% to 20%. This follows the release of robust retail sales data and lower-than-anticipated unemployment claims.
The signals are not entirely positive, but they are sufficient to prompt the economists at Goldman Sachs, who are under the leadership of Jan Hatzius, to reconsider the probabilities.
If the August employment report, which is scheduled to be released on September 6, does not disappoint, they may further reduce the likelihood of a recession, potentially to 15%. That was the position in which it was resting contentedly prior to its elevation earlier this month.
Wall Street has been abuzz with excitement following the most recent economic data. Investors seeking bargains following a recent sell-off were the driving force behind the greatest week of the year for stocks.
In July, retail sales experienced a substantial increase, the largest since early 2023, indicating that consumers are continuing to spend despite the high cost of financing and the increase in prices.
This is a favorable indicator for the economy, as consumer expenditure accounts for a substantial portion of U.S. economic activity.
In addition, the number of individuals who submitted applications for unemployment benefits decreased last week to the lowest level since early July. This is yet another indication that the employment market is remaining stable, despite the fact that job growth has been somewhat subdued.
Nevertheless, it is important to acknowledge that the employment market continues to exhibit some imperfections. In July, there was an 187,000 increase in nonfarm payrolls, which was less than the anticipated increase by experts.
Goldman’s economists are also providing their perspectives on the potential actions that the Federal Reserve may take in the future. They are gaining more assurance that the Federal Reserve will reduce interest rates by 25 basis points at their September meeting.
However, as with all other matters, it will be contingent upon the data. There is still a possibility that the Federal Reserve may opt for a 50 basis point reduction in the event that the August employment report yields results that are below expectations.
The Federal Reserve has been grappling with the challenge of maintaining inflation at a moderate level without causing a significant economic downturn. They have increased interest rates by 425 basis points since March 2022, resulting in the federal funds rate falling within the 5.25% to 5.50% range.
Whilst inflation has moderated, it remains above the Federal Reserve’s 2% objective, and these higher rates have been the primary defense against it.
In July, the Consumer Price Index (CPI) was at 3.2%, while the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation measure, was at 2.8% in June.
The Fed’s recent sharp rate increases have reignited an antiquated apprehension: the inversion of the yield curve. It is frequently perceived as a warning sign of an imminent recession when short-term interest rates exceed long-term rates.
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