The largest investment bank, Goldman Sachs, lowered its recession forecast for the US to 20%. Earlier, the bank's officials stated that the likelihood of a recession in the country was 25%.
Throughout this year, the possibility of a US recession has been hovering around 15%. However, economists at Goldman Sachs and other banks were rattled by a weaker-than-expected July jobs report.
However, recent figures on retail sales and unemployment benefits eased those concerns. As a result, Goldman Sachs cut the recession probability to 20% as new labor market data prompted a reassessment of the economic outlook.
Previously, Goldman Sachs economists had raised the 12-month recession probability in the US to 25% from 15%. This happened after the July jobs report showed that non-farm payrolls rose by just 114,000, far below expectations.
The report sparked worries about the world's largest economy and led to a sharp, but brief, stock market sell-off. The situation triggered the so-called "Sahm Rule," an indicator signaling the start of a recession phase in the United States.
Goldman Sachs analysts had previously cited this rule as a reason for the worsening US economic outlook. However, they changed their view, influenced by recent US macroeconomic data. The latest reports have shifted sentiments, reflected in rallies across global markets.
Goldman Sachs experts say that if the US continues on its current growth trajectory, it could start to resemble other G10 economies where the Sahm rule has been less predictive, holding true in less than 70% of cases.
However, Claudia Sahm, Chief Economist at New Century Advisors and the rule's creator, doubts that the US economy is currently in a recession. Nevertheless, she added that further weakening in the labor market could push the economy in that direction.
A positive US labor market report, set to be released on September 6, could turn the situation around. In the event of this, Goldman Sachs analysts might lower the recession likelihood to 15%, the level it has been hovering around for most of 2024.
Strong US macroeconomic data could also strengthen Goldman Sachs economists' prediction of a 25-basis-point rate cut at the September Fed meeting. However, the bank's negative scenario involves a more significant cut of 50 basis points.