Goldman Sachs sees lower chance of recession

Analysts at Goldman Sachs are seeing a lower probability that the United States will enter a recession over the next year, according to a new research note published Tuesday.  

Goldman Sachs announced in the note it cut its “judgmental probability” that the U.S. will enter a recession down to a 25 percent chance, a rollback from when it predicted a 35 percent change after the Silicon Valley Bank collapse. The researchers noted two reasons for the lower chance: Congress agreeing to a bipartisan debt ceiling agreement and stresses on the banking industry subtracting only a minimal amount from GDP growth this year.  

“Second, and more importantly, we have become more confident in our baseline estimate that the banking stress will subtract only a modest 0.4 [percent] from real GDP growth this year, as regional bank stock prices have stabilized, deposit outflows have slowed, lending volumes have held up, and lending surveys point to only limited tightening ahead,” the note said.  

The investment banking company also wrote that most of the news in the labor market has remained positive. The researchers explained that for more than a year, the U.S. has been able to create “large numbers of jobs while keeping the unemployment rate very close to its pre-pandemic level” of 3.5 percent.  

“Each of our preferred measures of labor market balance has now reversed significantly more than half of its post-pandemic overshoot, but most still have some way to go before they are consistent with 2% inflation,” the research note said.  

The analysts added that while the progress on combatting inflation has “continued to fall short of expectations,” indicators have shown that inflation should be decelerating soon.

The authors wrote that improving supply chains and decreasing rent prices should show that inflation could be coming down in the second half of 2023, noting that they expect it to come down to 3.7 percent by December.