Goldman Sachs Cuts Its Forecast That the US Will Enter Recession

Goldman Sachs has cut the probability of the US entering a recession in the next 12 months to 20% from 25%, following the latest jobless claims and retail sales reports.

Earlier this month, the investment bank raised its probability of a US recession from 15% after the unemployment rate rose to a three-year high in July, sparking fears of a recession.

“We have now lowered our probability from 25% to 20%, mainly because the data for July and early August released since August 2 show no signs of a recession,” Jan Hatzius, Goldman’s chief economist, said in a note on Saturday, according to CNBC.

The US jobless claims report released last Thursday showed the number of Americans filing for unemployment benefits fell to a one-month low the previous week, while separate data released the same day showed retail sales increased by the most in a year and a half in July.

Hatzius said that if the August jobs report looks “reasonably good,” he would lower the probability of a U.S. recession to 15%.

He stressed that the U.S. Federal Reserve will cut interest rates by 25 basis points at its September meeting, but did not rule out a 50 basis point cut if the jobs report falls short of expectations.

In this regard, Claudia Sahm, chief economist at New Century Advisors, said that she does not believe the United States is currently in a recession, but that further weakness in the labor market could push it into recession.

In contrast, the bank’s economists said that a good jobs report on Sept. 6 would “likely” prompt Goldman Sachs to lower the probability of a recession to 15%, which it had been for nearly a year before August.

They added that unless there is another downside surprise in the jobs report, Goldman Sachs would be more confident in its forecast for a 25 basis point rate cut at the U.S. Federal Reserve’s September meeting, rather than a sharp 50 basis point cut.