Goldman Sachs reduces US recession risk amid positive economic indicators

(MENAFN) Goldman Sachs has reduced its forecast for the likelihood of a U.S. recession in the next 12 months, lowering the probability from 25 percent to 20 percent. This adjustment follows the release of recent jobless claims and retail sales data, which have painted a more optimistic picture of the economy. Earlier this month, the investment bank had raised its recession probability from 15 percent to 25 percent after the U.S. unemployment rate hit a three-year high in July, sparking concerns of an impending economic downturn. However, in light of the latest data, Jan Hatzius, the chief economist at Goldman Sachs, indicated in a note on Saturday that the economic indicators for July and early August do not signal a recession. As a result, the bank has revised its recession probability downward.

The report on U.S. jobless claims released on Thursday revealed a decline in the number of Americans filing for unemployment benefits, reaching a one-month low in the previous week. This decrease in jobless claims, coupled with separate data showing a significant 1.5-year high increase in retail sales in July, suggests that consumer spending remains robust, further easing recession fears. Hatzius noted that these positive developments have influenced Goldman Sachs' decision to lower the recession risk. He also mentioned that if the upcoming August jobs report is "reasonably good," the probability of a U.S. recession could be further reduced to 15 percent, signaling a continued improvement in economic conditions.

In addition to the revised recession risk, Hatzius highlighted the potential actions of the Federal Reserve in response to the current economic landscape. He predicted that the Fed is likely to cut interest rates by 25 basis points at its September meeting. However, he did not rule out the possibility of a more substantial 50 basis point cut if the August jobs report falls short of expectations. This cautious approach reflects the Fed's ongoing balancing act between supporting economic growth and managing inflation. As the data continues to unfold, the Fed's decisions will be closely watched for their impact on the broader economic outlook, with Goldman Sachs remaining vigilant in its assessments of recession risks. 

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