Goldman Sachs Lowers Odds of US Recession in Anticipation of Positive Economic Data

Goldman Sachs, a leading investment bank, has revised down its estimate of the likelihood of a US recession occurring in the next 12 months. The probability has been reduced from 25% to 20% based on encouraging economic activity. Jan Hatzius, the chief economist at Goldman Sachs, highlighted a range of better-than-expected economic data in a research report released on Monday, prompting the revision.

According to Hatzius, the recent data have reinforced their confidence that the goal of reducing inflation to an acceptable level can be achieved without a recession. He stated, “The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession.”

The investment bank noted several positive indicators that contributed to their optimism. The US economy exhibited resilience, with second-quarter GDP growth tracking at 2.3%. Additionally, consumer sentiment rebounded, and unemployment levels fell to 3.6% in June. These factors further bolstered Goldman Sachs’ positive outlook.

In the first quarter, the US economy expanded at an annualized pace of 2%. Recent data from the Labor Department also revealed a decline in initial jobless claims to 239,000 for the week ending on June 24, surpassing estimates and marking a significant drop from the previous week.

There are strong reasons to anticipate a continued decrease in consumer price rises following slower core inflation rates in June, excluding food and energy. However, Goldman Sachs does anticipate some deceleration in subsequent quarters due to slower real disposable personal income growth.

Despite their positive outlook, Hatzius acknowledged that the US economy might grow at a below-trend pace. He cited factors such as the easing in financial conditions, the rebound in the housing market, and the ongoing boom in factory building, which all contribute to the expectation of continuous growth.

Goldman Sachs still expects a 25 basis point hike in the upcoming Federal Reserve meeting. However, Hatzius suggests that this increase may signify the end of the current cycle.