Goldman Sachs Revises US Recession Probability Down to 20 Percent

People wait in line to enter the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, N.Y., on Oct. 7, 2014. Shannon Stapleton/Reuters

Investment bank Goldman Sachs brought down the odds of a U.S. recession after recent data showed no signs of such an impending economic transition.

Earlier in August, Goldman Sachs raised the odds of a recession in the United States to 25 percent from 15 percent following a report that the July unemployment rate had hit a three-year high.

The brokerage has now “shaved our probability from 25 percent to 20 percent, mainly because the data for July and early August released since August 2 shows no sign of recession,” Goldman Sachs Chief U.S. Economist Jan Hatzius said in a note on Aug. 17, according to Reuters.

“Continued expansion would make the U.S. look more similar to other G10 economies, where the Sahm rule has held less than 70 percent of the time.”

The Sahm Rule indicator was updated to reflect a potential recession after it incorporated the July unemployment data. For the U.S. market, the indicator has given only two false signals since 1959.

However, Claudia Sahm, inventor of the Sahm rule, had warned against viewing the current recession signal as a valid one, saying the U.S. labor market has seen “unusual shifts” that could have distorted the indicator’s accuracy.

Data released on Aug. 15 showed a drop in the number of Americans filing for unemployment benefits from the previous week. Meanwhile, data showed that retail sales rose by 1 percent last month, making the biggest gain in 1 1/2 years.

If the jobs report for August turns out to be “reasonably good,” Hatzius said he could cut the U.S. recession probability back to 15 percent.

While Goldman Sachs brought down its recession probability, JP Morgan upgraded its forecast. The probability of a U.S. and global recession beginning before the end of 2024 has been raised to 35 percent from 25 percent in July, JP Morgan said in an Aug. 15 post.

“Important elements of our growth forecast are being challenged. U.S. news hints at a sharper-than-expected weakening in labor demand and early signs of labor shedding,” Bruce Kasman, chief global economist at J.P. Morgan, said.

“The latest business surveys also suggest a loss of momentum in global manufacturing and in the Euro area—weak links in the expansion that we have expected to lift this year.”

JP Morgan kept the probability of a recession by the end of 2025 unchanged at 45 percent.

US Recession Risks

Concerns about a U.S. recession come as the Federal Reserve’s Beige Book said last month that the economy is showing signs of softening, including pullbacks in consumer spending and a weakening in the labor market.

Of the 12 districts tracked by the Fed, five reported “flat or declining activity,” which was three more than prior reporting.

“Expectations for the future of the economy were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation,” the Beige Book stated.

Steve Hanke, professor of applied economics at Johns Hopkins University, calculates that a recession is coming. In a post on social media platform X, he said the U.S. money supply has contracted since July 2022 and that this is only the fifth time this has happened since 1913.

“Past contractions led to 3 RECESSIONS and the GREAT DEPRESSION. I anticipate the US will enter a recession [in] late 2024 or in early 2025,” he wrote.

Some experts estimate that the United States could already be in a recession. In a recent paper, Pascal Michaillat, associate professor of economics at UC Santa Cruz, and a colleague developed a new recession indicator.

Researchers said the indicator gets triggered earlier than with the Sahm rule and also has a “better historical track record,” claiming that it has perfectly identified all recessions since 1930.

“With July 2024 data, our indicator is at 0.5pp, so the probability that the US economy is now in recession is 40 percent. In fact, the recession may have started as early as March 2024,” the paper reads.

Meanwhile, business executives seem to be more confident in the strength of the U.S. economy.

A Confidence Board survey of 130 CEOs found that the share of these executives expecting a recession was 30 percent in the third quarter 2024, down from 84 percent a year prior.

“Most US CEOs no longer anticipate a recession in the coming year,” a statement about the survey results reads.

Reuters contributed to the report.