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U.S. Recession Risk Decreases Amid Job Market Gains
Goldman Sachs has reduced the probability of a U.S. recession within the next 12 months to 15%, down from 20%, after the September employment data showed robust growth. The Labor Department reported the highest job gains in six months, with unemployment falling to 3.8%.
Labor Market Narrative Shift
Goldman Sachs’ Chief U.S. Economist, Jan Hatzius, noted that the September employment report has "reset the labor market narrative," easing concerns about a rapid weakening in labor demand. The strong job gains suggest the unemployment rate is not expected to rise significantly.
Federal Reserve Rate Outlook and Market Reactions
Goldman Sachs forecasts consecutive 25 basis point cuts by the Federal Reserve, targeting a terminal rate of 3.25-3.5% by June 2025. Hatzius also indicated a reduced risk of a more aggressive 50-basis-point cut. Financial markets have increased the probability of a quarter-point rate cut in November, jumping to 71.5% following the jobs report, as per the CME Group's FedWatch tool.
Job Growth Outlook and Economic Trends
Despite some volatility in job numbers, Goldman Sachs sees no clear signs of persistent negative revisions, crediting steady job growth to strong GDP and high job openings. However, the firm cautions that October's data may be influenced by external factors, such as potential hurricanes and significant strikes, which could affect payroll figures.
Conclusion
With the economy showing resilience through strong job growth and GDP expansion, Goldman Sachs maintains an optimistic outlook on the U.S. economy, while remaining alert to possible short-term disruptions.
