Goldman Sachs Reduces US Recession Odds to 15% Following Strong Jobs Report

Goldman Sachs has reduced the likelihood of the United States entering a recession within the next year by five percentage points, bringing the estimate down to 15%. This adjustment follows the release of a recent employment report that revealed more favorable job data than anticipated.

The Labor Department’s report indicated that U.S. job gains experienced their largest increase in six months during September, with the unemployment rate dropping to 4.1%. Goldman Sachs’ chief U.S. economist, Jan Hatzius, mentioned in a note that the September employment figures have “reset the labor market narrative” and eased concerns about a potential rapid decline in labor demand that could lead to a rise in the unemployment rate.

The firm has kept its projection of consecutive 25 basis point cuts, expecting a terminal rate of 3.25% to 3.5% by June 2025. Hatzius also noted a diminished risk of an additional 50 basis point rate cut.

In September, the Federal Reserve implemented its first rate reduction since 2020, cutting the policy rate by 50 basis points to a range of 4.75% to 5.00%. Following the employment report, financial markets increased the probability of a quarter-percentage-point reduction in November from 71.5% to 95.2%.

Despite the historical volatility of job numbers, Goldman Sachs believes the latest figures can be interpreted confidently, citing a lack of clear signs pointing to further persistent negative revisions. Hatzius remarked, “More broadly, we see no obvious reason for job growth to be mediocre at a time when job openings are high and GDP is growing strongly.”

Nonetheless, the firm warned that October may present challenges, with a hurricane and a significant strike potentially impacting payroll figures.