- Goldman Sachs has reduced the U.S. recession risk from 25% to 20%, citing strong retail sales and lower jobless claims.
- If the August jobs report shows further improvement, the recession probability could drop to 15%, with a potential 25 basis point Fed rate cut in September.
Goldman Sachs economists recently adjusted their forecast for a U.S. recession, lowering the probability from 25% to 20%. This revision comes on the back of encouraging economic data, which has fueled optimism in both the markets and among investors. Key indicators such as retail sales and jobless claims have pointed toward a healthier economy, leading experts to believe the country may avoid a significant downturn in the near future.
The Impact of Positive Economic Data
The decision to lower the recession risk follows a series of positive economic reports. July retail sales showed a notable increase, suggesting that consumer spending remains resilient despite higher inflation and borrowing costs.
Simultaneously, claims for unemployment benefits fell to their lowest level since early July, indicating a steady labor market. These factors have led to a boost in U.S. stock performance, which enjoyed its best week of the year.
The August jobs report, scheduled for release on September 6, could be critical in shaping future forecasts.
If the data continues to show improvement, Goldman Sachs may further reduce the recession probability to 15%, aligning it with their earlier projections before an upward revision on August 2.
What This Means for the Federal Reserve’s Next Move
The improving economic outlook has also sparked speculation about the Federal Reserve’s next steps regarding interest rates. According to Goldman Sachs, there’s growing confidence that the Fed will opt for a 25 basis point rate cut during its September meeting.
However, this decision could hinge on the upcoming jobs report. A disappointing employment number could prompt a more aggressive 50 basis point cut, signaling that the Fed remains vigilant against economic threats.
Investors Should Remain Cautious Yet Optimistic
While the outlook has improved, it’s essential for investors to remain cautious. Economic forecasts can change rapidly, especially in response to unexpected data or global events. Nevertheless, the lowered recession probability and signs of economic resilience should offer some comfort to those concerned about potential market downturns.
Goldman Sachs’ revised forecast suggests a more optimistic economic outlook for the U.S., with retail sales growth and low jobless claims as key drivers. As we await further data, particularly from the August jobs report, investors can look forward to a potentially softer landing for the economy, while staying alert for any shifts that could alter the current narrative.