Goldman Sachs Strategists Cut 12-Month Recession Probability to 15% After Strong September Jobs Report
Goldman Sachs strategists have revised their 12-month recession probability down to 15%, aligning with historical averages, following a positive September employment report. The recent job gains and downward trend in the unemployment rate have eased concerns about labor market weakness.
The key factor behind the revision was the drop in the unemployment rate to 4.051% in September, below the threshold triggering the “Sahm rule”. While labor supply growth is expected to slow, job growth will need to remain strong to stabilize the unemployment rate.
Goldman sees no clear reason for mediocre job growth despite high job openings and strong GDP growth. The recovery in job growth supports the view that the Federal Open Market Committee (FOMC) is likely to proceed with rate cuts. They project consecutive 25bp cuts, with a terminal rate of 3.25% to 3.5% by June 2025.
The strategists believe that a pause in the rate-cutting cycle is unlikely in the near future, but the FOMC may adjust the pace of cuts as necessary. The labor market remains softer than pre-pandemic levels, with risks to the unemployment rate still present.
In conclusion, the positive trends in job growth and the unemployment rate provide early evidence of a strengthening labor market. This could impact future rate cuts by the FOMC and the overall economic outlook. Investors should continue to monitor these indicators for potential investment opportunities and risks in the market.