Improved Jobless Claims and Retail Sales Data Lead to Optimism for Continued Economic Expansion
Goldman Sachs (GS) has revised its outlook on the likelihood of a U.S. recession in the next 12 months, lowering the odds to 20% from the previous 25%. This change comes in response to recent economic data, including encouraging jobless claims and robust retail sales reports.
Earlier in August, the brokerage had increased the recession probability from 15% to 25% after the U.S. unemployment rate reached a three-year high in July, raising concerns about a potential economic downturn. However, the latest data has provided a more optimistic picture of the economy’s trajectory.
“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,” said Jan Hatzius, Goldman Sachs’ chief U.S. economist, in a note issued on Saturday.
Hatzius pointed out that the recent figures suggest the U.S. economy might continue its expansion, making it more akin to other G10 economies where the Sahm rule—a rule that signals a recession when the three-month average unemployment rate rises by at least 0.5 percentage points from its lowest point in the last 12 months—has been a less reliable indicator, holding true less than 70% of the time.
The latest jobless claims report, released last Thursday, showed that the number of Americans filing for unemployment benefits had dropped to a one-month low during the previous week. This improvement in the labor market is complemented by strong retail sales data, which revealed that sales increased by the most in 18 months in July.
These positive indicators have led to a more favorable economic outlook. Hatzius noted that if the upcoming August jobs report, expected next month, shows “reasonably good” results, Goldman Sachs may further reduce the U.S. recession probability to 15%.
While the likelihood of a recession has decreased, Hatzius also addressed the Federal Reserve’s potential response to the evolving economic conditions. He currently expects the Fed to cut interest rates by 25 basis points at its September meeting. However, he did not dismiss the possibility of a more substantial cut of 50 basis points if the August jobs report does not meet expectations.
This adjustment in recession odds reflects growing confidence that the U.S. economy can continue to expand despite earlier concerns. With jobless claims decreasing and retail sales strengthening, the latest data provides a more stable foundation for economic growth. However, much hinges on the upcoming jobs report, which will play a critical role in shaping both Goldman Sachs’ recession forecast and the Federal Reserve’s monetary policy decisions.
As the U.S. economy navigates these uncertain times, the interplay between economic data and policy responses will be closely monitored by economists, investors, and policymakers alike. The reduced recession probability signals a cautious optimism, but the road ahead will depend on how the economy performs in the coming months.
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