Goldman Sachs has recently reduced the odds of a U.S. recession occurring in the next 12 months from 25 percent to 20 percent following the release of better weekly jobless claims and retail sales reports this month.
In early August, the firm raised the odds of a U.S. recession from 15 percent after the unemployment rate jumped to a three-year high in July, sparking fears of an economic downturn.
Positive data boosts U.S. economy’s outlook
Thursday’s jobless claims report showed that the number of Americans filing for unemployment benefits dropped to a one-month low in the previous week. Meanwhile, another set of data revealed that retail sales increased the most in 1.5 years in July.
On August 2, the U.S. July jobs report revealed that nonfarm payrolls grew by a less-than-expected 114,000. That was down from the downwardly revised 179,000 of June and below the Dow Jones estimate of 185,000. The report triggered market concerns about the world’s largest economy and contributed to the sharp but brief stock market sell-off at the start of the month.
In addition, the data triggered the “Sahm rule,” a historical indicator that reveals the beginning of the initial phase of a recession, when the three-month moving average of the U.S. unemployment rate is at least half a percentage point higher than the 12-month low.
Goldman Sachs added that if the August jobs report, due on September 6, was good, the U.S. recession probability would decline to 15 percent.
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Rate cut expectations
The firm maintained its view that the Federal Reserve will cut interest rates by 25 basis points during its September meeting, but did not rule out a 50-basis-point cut if the jobs report falls short of expectations.
Markets have fully priced in a Fed rate cut in September, but have decreased the odds of a 50-basis-point reduction to just 28.5 percent, according to CME’s FedWatch tool.
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