Lower Manhattan skyline and One World Trade Center in New York City and the Water’s Soul sculpture on July 11, 2023 in Jersey City, New Jersey. (Photo by Gary Hershorn/Getty Images)
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Goldman Sachs has revised down the probability of a US recession over the next 12 months, cutting the probability from 25% to 20% on positive economic activity.
The investment bank’s chief economist Jan Hatzius cited a string of better-than-expected economic data in a research report released on Monday.
“The main reason for our cut is that recent data have boosted our confidence that a recession will not be needed to bring inflation down to acceptable levels,” he said.
Citing resilient US economic activity, the chief economist said second-quarter GDP growth came in at 2.3%. The rebound in consumer sentiment and the drop in the unemployment rate to 3.6% in June also added to Goldman’s optimism.
The US economy grew 2% on an annualized basis in the first quarter. Last Thursday, Labor Department data showed that initial jobless claims for the week ended June 24 fell to 239,000, well below estimates of 264,000 and down 26,000 from the previous week.
There are also “strong fundamental reasons” that the moderation in CPI will continue after June core inflation (excluding food and energy) rose at the slowest pace since February 2021.
However, the investment bank expects some deceleration in subsequent quarters due to sequentially slower real disposable personal income growth.
“But the easing of financial conditions, the recovery in the real estate market and the ongoing boom in factory construction all suggest that the US economy will continue to grow, albeit at a below-trend pace,” Hatzius said.
Goldman still expects a 25 basis point rate hike at the upcoming Federal Reserve meeting next week, but Hatzius believes this could be the last time in the current cycle.
—CNBC’s Michael Bloom contributed to this report.
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