Goldman Sachs lowers recession probability in the USA – labor market shows positive signals

Goldman Sachs has lowered the probability of a recession in the US within the next 12 months by five percentage points to 15%. This is the result of the latest employment report, which presented unexpectedly positive figures. In September, the US recorded the highest job growth in the last six months, and the unemployment rate fell to 4.1%, as reported by the Department of Labor on Friday. This report has fundamentally changed the narrative around the labor market and dispelled concerns about a rapid weakening in labor demand, which could raise the unemployment rate, stated Jan Hatzius, Goldman Sachs' Chief Economist for the US, in a statement on Sunday. The Wall Street brokerage maintains its forecast that key interest rates will be reduced in several steps by 25 basis points each to reach an end value of 3.25-3.5% by June 2025. "We now see the risk of another 50 basis point cut as much lower," Hatzius added. The Federal Reserve decided in September to cut rates by 50 basis points to a range of 4.75 to 5.00%, the first reduction since 2020. Financial markets subsequently increased the likelihood of a quarter-point cut in November from 71.5% to 95.2%, as shown by the CME Group's FedWatch tool. Although employment figures have been volatile, there is little indication of sustained negative corrections, according to the Wall Street brokerage's assessment. Hatzius noted that there is no apparent reason for mediocre job growth, especially during times of high labor demand and a strongly growing economy. However, October could pose a burden on employment figures due to a hurricane and a major strike, they warned.