Goldman Sachs Lowers U.S. Recession Odds After Strong Jobs Report
In a recent note, Goldman Sachs chief U.S. economist Jan Hatzius announced that the odds of the United States slipping into a recession in the next 12 months have been reduced by five percentage points to 15%. This positive development comes after the latest employment report showed better-than-expected data, with U.S. job gains increasing significantly in September and the unemployment rate falling to 4.1%.
According to Hatzius, the September employment report has reset the labor market narrative and alleviated concerns about weakening labor demand leading to higher unemployment rates. As a result, Goldman Sachs has maintained its forecast of consecutive 25 basis points cuts, aiming for a terminal rate of 3.25-3.5% by June 2025. The brokerage also expressed confidence in the economy by stating that there is now much less risk of another 50-bps rate cut.
The Federal Reserve had previously cut its policy rate by 50 bps in September, marking its first rate reduction since 2020. Following the positive job report, financial markets have increased the odds of a quarter-percentage-point reduction in November to 95.2%, up from 71.5% before the report.
While the job numbers may have been volatile, Goldman Sachs believes they can be trusted as there are no clear signs of further negative revisions. Hatzius also noted that there is no apparent reason for job growth to be lackluster when job openings are high and GDP is growing strongly. However, the brokerage cautioned that October could be a challenging month due to a hurricane and a major strike potentially affecting payrolls.
In conclusion, the latest developments indicate a positive outlook for the U.S. economy, with reduced recession risks and potential rate cuts. Investors and individuals should stay informed and monitor these trends to make informed decisions about their finances and future investments.