For the third time in as many months, Goldman Sachs has cut the probability that the US economy will enter a recession in the next year.
In a note titled "Soft landing summer" released Monday, Goldman Sachs chief economist Jan Hatzius said there was a 15% chance of a recession in the next 12 months, down from an earlier forecast of 20%.
"The continued positive inflation and labor market news has led us to cut our estimated 12-month US recession probability," Hatzius wrote.
Goldman Sachs notes its forecast is significantly below Bloomberg's consensus forecast for a 60% chance of a recession in the next 12 months. After a summer of stronger-than-expected economic data, Hatzius and Goldman Sachs still see the US economy growing at a 2% annual pace on average through the end of 2024.
"The economy has continued to be pretty resilient," Hazius exclusively told Yahoo Finance Live at the Goldman Sachs Communacopia conference on Tuesday. "We're growing at 2% plus. We think that's going to be true in 2024 as well. Income growth looks supportive. Job growth is still pretty, pretty significant. And at the same time, the labor market has gotten more rebalanced."
Underlying movements in the labor market could keep the economy growing, per Hatzius. Hatzius highlighted that while monthly jobs reports have shown signs of a cooling labor market, the US economy is still adding jobs and wages are increasing, both positives for economic growth projections. The recent August jobs report showed the US economy added 187,000 jobs while average hourly earnings rose 4.3% and the unemployment rate increased to 3.8%, its highest level in 18 months.
Hatzius noted that the 0.3 percentage point uptick in unemployment was unconcerning, as it largely reflected more workers coming back to the labor force. This, over time, could support consumer spending, thus helping the US skirt a recession.
'Several noticeable drags'
Goldman's call joins economists at Bank of America and Wall Street firms who either see no recession in the next year or a significantly lower chance of one as the economy eyes a new era of "unspectacular growth."
But those still predicting a recession see the lagging impact of the Fed's historically aggressive interest rate hiking cycle and the fear of more rate hikes as potential showstoppers for economic growth.
"The number of forecasters ditching a recession scenario for a soft landing is growing, but we are not ready to make this change and have only made minor adjustments to our baseline this month," Oxford Economics chief US economist Ryan Sweet wrote in a note on Aug. 30. "The economy is clearly doing better than anticipated, but there are several noticeable drags that will hit the economy later this year and in early 2024, including tighter lending standards, past tightening of monetary policy, the expected drag from fiscal policy, and inventory swings."
Hatzius and Goldman Sachs "strongly disagree" the long and variable lags of monetary policy will slow economic growth. They expect the anticipated slowdown from the restarting of student loan payments in October to be "short lived," and the other drags from monetary policy to slowly diminish.
Additionally, Goldman thinks the Fed is done hiking interest hikes.
"Our confidence that the Fed is done raising rates has grown in the past month," Hatzius wrote. "We view Chair Powell’s promise at Jackson Hole to “proceed carefully” as a signal that a September hike is off the table and the hurdle for a November hike is significant."
Josh Schafer is a reporter for Yahoo Finance.
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