Goldman Sachs Lowers US Recession Probability To 20% On Strong Economic Data

Goldman Sachs has slashed its estimated likelihood of a U.S. recession in the next 12 months to 20% from 25% after encouraging reports on weekly jobless claims and retail sales, Reuters reported.

The adjustment comes after the investment bank had previously raised the odds from 15% earlier this month, citing concerns sparked by a rise in the unemployment rate to a three-year high in July.

In a note released on Saturday, Goldman Sachs' Chief U.S. Economist Jan Hatzius explained the reasoning behind the updated forecast.

"We have lowered our probability from 25% to 20%, largely because the data for July and early August, released since August 2, shows no indication of an impending recession," Hatzius said.

He also noted that the continued economic expansion in the U.S. is beginning to mirror the trends seen in other G10 economies, where the Sahm rule—an indicator often used to predict recessions—has been less predictive, holding true less than 70% of the time.

"Continued expansion would make the U.S. look more similar to other G10 economies, where the Sahm rule has held less than 70% of the time," Hatzius said.

The revision was influenced by last Thursday's jobless claims report, which showed a drop in the number of Americans filing for unemployment benefits to a one-month low.

Meanwhile, another data revealed that retail sales in July saw their largest increase in 18 months, further easing fears of an economic downturn.

Looking ahead, Hatzius said that if the August jobs report, set to be released soon, shows positive results, the probability of a U.S. recession could be further reduced to 15%.

He also added that the Federal Reserve is likely to cut interest rates by 25 basis points at its September meeting.

However, he did not rule out a more substantial 50 basis point cut if the upcoming jobs data fails to meet expectations.