Goldman Sachs has adjusted the likelihood of the United States entering a recession within the next 12 months to 20%, down from 25%, following the recent reports on weekly jobless claims and retail sales. This move comes after the brokerage initially raised recession odds from 15% earlier this month, prompted by a three-year high in the unemployment rate in July, which triggered concerns of an economic downturn.
In a statement on Saturday, Jan Hatzius, Chief U.S. Economist at Goldman Sachs, explained the decision to lower the recession probability, stating, “We have now reduced our probability from 25% to 20%, primarily due to the data released since August 2 for July and early August, which shows no signs of a recession.” Hatzius also remarked that sustained growth would align the U.S. more closely with other G10 economies, where the Sahm rule has been effective less than 70% of the time.
The latest jobless claims report released on Thursday revealed a decline in the number of Americans seeking unemployment benefits to a one-month low in the preceding week. Additionally, separate data unveiled on the same day indicated that retail sales experienced the most significant increase in 1-1/2 years in July.
Looking ahead, Hatzius mentioned that if the August jobs report demonstrates positive outcomes, he would consider revising the U.S. recession probability down to 15%.
Despite the adjustment in recession odds, Hatzius maintains the view that the Federal Reserve will reduce interest rates by 25 basis points at its upcoming September meeting. However, he did not dismiss the possibility of a more aggressive 50 basis points cut if the jobs report falls short of expectations.
