According to Goldman Sachs Research Chief Economist Jan Hatzius, there is a 20% probability of a US recession within the next 12 months. This estimate remains unchanged from the forecast before last week’s August jobs report. The current recession probability sits between the 15% estimated prior to July’s weaker-than-expected jobs report and the 25% figure calculated afterward.
Despite last week’s jobs data slightly missing expectations, it showed a rebound from the prior month and a small drop in the unemployment rate to 4.2%. Other recent economic indicators, such as the nonmanufacturing ISM, initial jobless claims, and personal consumption, have been solid. Goldman Sachs Research’s US GDP tracking estimate for Q3 remains steady at 2.5%.
Exhibit 1: Despite the Recent Uptick in Unemployment, Goldman Sachs Recession Risk Estimate Remains Low
Additionally, Goldman Sachs Research expects three Federal Reserve rate cuts of 25 basis points each at the remaining Federal Open Market Committee meetings this year. Hatzius notes that confidence has grown in a modest rate cut at the September 18 meeting, citing the latest data and Fed comments about a cautious approach to future cuts.
