Key points:
- Goldman Sachs lowered the odds of a U.S. recession to 20% from 25%
- Recent retail sales and jobless claims data influenced this decision
- July retail sales increased by 1%, exceeding expectations
- Weekly unemployment benefit claims were lower than expected
- Goldman Sachs predicts a 25 basis point interest rate cut by the Fed in September
Goldman Sachs, a leading investment bank, has changed its view on the likelihood of a U.S. recession.
The bank now thinks there’s a 20% chance of a recession in the next year, down from its earlier estimate of 25%.
This change comes after new information about retail sales and jobless claims. These reports suggest the U.S. economy might be stronger than previously thought.
Earlier in August, Goldman Sachs raised the odds of a recession from 15% to 25%. This happened because the July jobs report wasn’t as good as expected. It showed that only 114,000 new jobs were added, which was less than the 185,000 jobs experts predicted.
But more recent data has painted a brighter picture. Retail sales in July went up by 1%, which was much better than the 0.3% increase that was expected. This means people are spending more money in stores and online.
Also, the number of people applying for unemployment benefits was lower than expected. This suggests that fewer people are losing their jobs.
Jan Hatzius, the chief U.S. economist at Goldman Sachs, explained the bank’s thinking. He said,
“We have now shaved our probability from 25% to 20%, mainly because the data for July and early August released since August 2 shows no sign of recession.”
The bank is now waiting to see what happens with the next jobs report, which will come out on September 6. If this report looks good, Goldman Sachs might lower the chance of a recession even more, back to 15%.
These economic reports have also changed how people think about what the Federal Reserve might do. The Federal Reserve is in charge of setting interest rates in the U.S. Goldman Sachs now thinks the Fed will probably cut interest rates by 0.25% at its September meeting. But if the next jobs report isn’t good, the Fed might make a bigger cut of 0.5%.
Other experts are also feeling more positive about the economy. Rashmi Garg, who works at Al Dhabi Capital, agrees that a 0.25% rate cut is likely unless the job market gets much worse.
The recent good news about the economy helped the stock market. In fact, stocks had their best week of 2024 after these reports came out.
Some economists are still using something called the “Sahm rule” to judge if a recession might be starting. This rule looks at changes in the unemployment rate over time.
Claudia Sahm, who created this rule, doesn’t think the U.S. is in a recession right now. But she warns that if the job market gets weaker, it could lead to a recession.
For now, many stores and businesses are waiting to see what happens. They’re especially interested in how people will spend money during the holiday shopping season at the end of the year.
The most recent data shows that people are buying more of most everyday items. Food and drinks are selling well, and stores like Walmart have reported good sales. But people aren’t buying as many summer clothes or vacation items as before.
