Goldman Sachs Cuts Odds of U.S. Recession to 20% after Retail and Jobs Data

• Goldman Sachs has cut its probability forecast for a U.S. recession to 20% shortly after raising it, as fresh labour market data sparked a reassessment of market views on the economy.
• Economists at Goldman earlier this month raised their 12-month U.S. recession probability from 15% to 25% after the U.S. July jobs report showed nonfarm payrolls grew by a less-than-expected 114,000. That was down from the downwardly revised 179,000 of June and below the Dow Jones estimate of 185,000. 
• The report triggered widespread concerns about the U.S. economy and contributed to the sharp — but ultimately brief — stock market sell-off at the start of the month. It also triggered the “Sahm Rule,” a historical indicator showing that the initial phase of a recession begins when the three-month moving average of the U.S. unemployment rate is at least half a percentage point higher than the 12-month low.
• Goldman initially cited this as a reason for hiking the probability of an economic downturn — but changed tack on Saturday, when it wrote in a note that it saw the odds down to 20% because data released since Aug. 2 showed “no sign of a recession.”
• That data included retail sales for July — which rose by 1%, versus an estimate of 0.3% — and weekly unemployment benefit claims, which were lower than expected. A healthy jobs report on Sept. 6 would “probably” spur Goldman to cut its recession probability back to 15%, where it had been for nearly a year before August, the bank’s economists said.
• Unless another downside surprise in the jobs report takes place, Goldman will become more confident in its forecast for a 25-basis point rate cut at the Federal Reserve’s September meeting, rather than a steeper 50-basis point trim.

(Source: CNBC)