Global investment bank Goldman Sachs lowered the possibility of the U.S. falling into an economic recession in the next 12 months from 35% to 25%.
According to Bloomberg News on the 6th (local time), Jan Hachius, a senior economist who leads Goldman Sachs’ research team, said he would make such adjustments based on a solid labor market.
This is a clear difference in temperature from the overall economic recession concern atmosphere. In a survey of economists conducted by Bloomberg last month, the possibility of an economic recession within 12 months reached 65%.
“The labor market is still solid and there are signs of improvement even if we investigate companies,” Hachius said. “The risk of a short-term recession has decreased noticeably.”
Earlier, the U.S. Department of Labor said that non-agricultural jobs increased by 517,000 in January. This is nearly three times higher than the market forecast of 187,000 units. The unemployment rate was 3.4%, the lowest in 54 years since May 1969.
Hachius pointed out that although large technology companies (Big Tech) have been fired one after another, they are mainly concentrated in the technology sector and do not show the entire U.S. labor market. He also explained that mass layoffs have recently occurred due to the average employment of 41% more during the COVID-19 pandemic. Hachius explained that investors angry at the sharp drop in stock prices are also demanding that they cut costs by reducing their workforce.
“While layoffs are concentrated in certain industries such as technology, employment is appearing in other areas,” he said. “Moreover, laid-off workers are looking for new jobs, so not all layoffs lead to continued unemployment growth.”
On the other hand, the overheating of wages, which the Federal Reserve (Fed) had closely watched, has calmed down somewhat. In the fourth quarter of last year, the Employment Cost Index (ECI) rose 1.0% from the previous quarter, below the experts’ expectations of 1.1%.
Goldman Sachs said inflation is rapidly approaching the Fed’s target of 2%, with wage growth falling.
He also added that good growth in leading countries will help the U.S. economy, with the eurozone (20 euro-using countries) avoiding economic recession and China rebounding rapidly.
“We support the Fed’s view that the U.S. economy can make a ‘soft landing’,” Hachius said. “We will raise interest rates by 25 basis points (bp) at regular FOMC meetings in March and May.”
As for the stock market, Hachius predicted that economic resilience will support cyclical stocks. However, he added that further gains will be limited because the U.S. stock market valuation is already high.
