After the September United States employment data crushed analysts’ estimates, banking giant Goldman Sachs (NYSE: GS) has leveraged the metric to adjust the chances of the economy entering a recession.
In the final month of the third quarter, U.S. non-farm payroll data came in at 254,000, against an analyst forecast of 150,000, while unemployment came in lower at 4.1%.
And now, Goldman Sachs’ chief U.S. economist, Jan Hatzius, stated that the data “resets the narrative for the job market,” consequently lowering fears of weakening job demand, he said in a note on October 6.
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To this end, the bank revised the chances of a recession from 20% to the long-term average of 15% in the next year. According to Hatzius, with high job vacancies and robust GDP growth, there are limited drivers for employment growth to face a downward trend.
Back in August, the bank noted that the risk of a recession had jumped from 15% to 25% before cutting it back to 20% due to resilient labor market and retail data.
“We have cut our 12-month US recession probability back to the unconditional long-term average of 15%. <..>. The data reinforced our conviction that the Federal Reserve will slow the pace of its interest-rate cuts to 25 basis points in November,” Hatzius said.
Impact of Fed’s rate cut on recession
The chances of a recession were further questioned following last month’s 50 basis points interest rate cut by the Federal Reserve. In this line, Goldman Sachs predicted that the rate will likely accelerate in the coming months, projecting a final rate cut of 3.25% to 3.5% by June 2025.
Elsewhere, in the wake of better employment data, Elyse Ausenbaugh, head of investment strategy at JPMorgan (NYSE: JPM) Wealth Management, noted that the outcome minimizes the chances of a recession and has paved the way for a soft landing.
“A soft landing is in sight. <…> The bottom line here is that a resilient labor market is continuing to support consumers, and the Fed is cutting rates,” Ausenbaugh said.
The probability of a market downturn has dropped when the stock market, led by the S&P 500, is rallying to hit a new high. Some analysts estimate the index could reach a record of 6,000 or higher.
Dissenting voices on recession chances
However, not all market players are convinced that recession fears are entirely out of sight. As reported by Finbold, economist Henrik Zeberg maintains that the current market gains will lead to a blow-off top, impacting equities and cryptocurrencies before the worst market crash in history.
This sentiment is shared by the investor and author of the best-selling personal finance book Rich Dad Poor Dad, Robert Kiyosaki, who believes that investors need to turn to gold, silver, and Bitcoin (BTC) to protect their wealth in case of a crash. Interestingly, the two precious metals are rallying to historical highs amid prevailing geopolitical tensions in the Middle East.
