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Goldman Sachs Cuts U.S. Recession Odds Down to 20%

Dollar Credit Suisse

Goldman Sachs, one of the world’s most important and prestigious financial firms, is optimistic about the U.S. economy’s performance over the next few years. The firm set the chances of a U.S. recession at a meager 20%.

“Growth in the U.S. is also getting a sizable boost from a recovery in real disposable income and stabilization in the housing market, Jan Hatzius, head of Goldman Sachs Research and the firm’s chief economist, wrote in the team’s report.

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Moreover, there are strong fundamental reasons to expect ongoing disinflation, Hatzius wrote. Used car prices are sliding amid higher auto production and inventories, rent inflation still has a long way to fall before it catches up with the message from median asking rents, and the labor market has continued to rebalance with an ongoing downtrend in job openings, quits, reported labor shortages, and nominal wage growth.

“Our economists forecast annual average growth this year of 1.8%, which is well above the consensus of private-sector economists and projections from the U.S. Federal Reserve,” said Goldman Sachs.

Goldman Sachs also expects the U.S. Federal reserve to soon raise interest rate by 25 basis points (0.25%) to 5.25-5.5% at the July 25-26 meeting. But Goldman added that the firms’ economists expect that this would to be the last of the recent cycle of rate hikes.

Central banks around the world have been raising rates in an effort to curb global inflation. Should the rise in inflation seen over the past 18 months finally end, then the world will surely see a period of economic growth.

Goldman Sachs also cited positive indicators in the jobs market, saying “Broader measures of labor market overheating, meanwhile, continue to improve.”

For example, the firm said that while the Job Openings and Labor Turnover Survey (JOLTS) showed what it called a surprise increase to 10.1 million in April, the private-sector measures from LinkUp and Indeed declined further in April and May. Also, the share of Russell 3000 earnings calls that mentioned labor shortages fell further to 3% in the first quarter of 2023, relative to a peak of 16.5% in the third quarter of 2021.

Goldman Sachs said that the firm’s economists’ preferred measures of labor market balance have now reversed significantly more than half of its post-pandemic overshoot, but most still have some way to go before they are consistent with 2% inflation.

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