Why Goldman Sachs Thinks A Recession Isn’t Actually That Likely

Why Goldman Sachs Thinks A Recession Isn’t Actually That Likely
Jonathan Hobbs, CFA

over 1 year ago1 min

Mentioned in story

At long last, some good news: Goldman’s 2023 Macro Outlook report came out last week, and the big bank’s research department isn't quite as bearish on the US economy as most economic forecasters. Goldman only sees a 35% chance of a recession in the next 12 months (red bar), 30% below the general consensus (black dotted line).

Instead, the investment bank expects the US economy to “narrowly avoid” a recession in 2023, as core “Personal Consumption Expenditure” (PCE) inflation slips from today’s 5% a year to 3% in late 2023. And while most economists believe a ton of Americans will have to lose their jobs – so they’re forced to spend less money – for inflation to come down, Goldman thinks this cycle is different: just a 0.5% rise in unemployment should do the trick.

After all, Goldman expects one major driver of inflation to start ironing itself out: pandemic-induced supply chain issues. The bank says goods are becoming easier and faster to make and deliver to the end consumer, and that’s making the whole process cheaper. And since suppliers are also stocking more inventory, stock is no longer impossibly hard to come by, and that drives prices back down. Goldman even says rent is starting to stabilize too, as the lockdown-accelerated demand for more home-working space returns to the status quo.

Now not to be the bearer of bad news, but a 35% chance of a recession doesn’t exactly guarantee there won’t be one. In fact, most economic researchers still think one’s more likely than not, while Fidelity expects a hard landing in 2023. I’ve written more about that here. But hey, that good news was good while it lasted.

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