Summary
Goldman Sachs has revised its forecast for the likelihood of a U.S. recession to 15%, down from 20%, following a robust jobs report that exceeded expectations. The report indicated strong job growth, with nonfarm payrolls increasing by 254,000 in September, alongside a decline in the unemployment rate to 4.1%. This positive labor market data has led the investment bank to maintain its outlook for gradual interest rate cuts by the Federal Reserve.
The recent employment figures have significantly shifted the economic narrative, suggesting resilience in the labor market despite previous concerns about a potential slowdown. Goldman Sachs’ chief economist, Jan Hatzius, noted that there is no clear reason for job growth to stagnate, given the high number of job openings and strong GDP growth. The bank also anticipates that the Federal Reserve will implement 25 basis point cuts in the coming months, targeting a terminal rate of 3.25% to 3.5% by mid-2025. This outlook reflects a broader confidence in the U.S. economy’s ability to navigate challenges, including rising inflation and geopolitical tensions, while maintaining a positive growth trajectory.
Key Indicators of Economic Health
- Job Growth: The U.S. economy added 254,000 jobs in September, well above economists’ forecasts, marking the highest job growth in six months.
- Unemployment Rate: The unemployment rate fell to 4.1%, indicating a tightening labor market.
- Future Rate Cuts: Goldman Sachs expects the Federal Reserve to cut interest rates by 25 basis points in both November and December, reflecting a cautious but optimistic approach to monetary policy.
Implications for the Market
The reduction in recession odds and the strong jobs report have led to a more favorable outlook for the stock market. Goldman Sachs has raised its year-end forecast for the S&P 500 to 6,000, driven by the resilience of the U.S. economy and improved corporate earnings expectations. The ongoing strength in the labor market is expected to support consumer spending and overall economic growth, further alleviating fears of an impending recession.
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