Goldman Sachs has slashed its odds of a U.S. recession within the next year to a mere 15%. This optimistic adjustment comes on the heels of a strong September employment report that paints a more positive picture of the U.S. economy. The Labor Department’s figures revealed that U.S. job growth reached its highest point in six months, with unemployment dropping to 4.1%. This shift in the labor market narrative has prompted Goldman Sachs chief U.S. economist, Jan Hatzius, to adjust the firm’s outlook. Despite this positive news, Goldman Sachs maintains its forecast for quarter-point rate cuts, targeting a terminal rate between 3.25% and 3.5% by mid-2025. However, Hatzius acknowledged a decrease in the probability of a larger, 50-basis-point cut, following the Federal Reserve’s recent 50-basis-point rate reduction. Financial markets have reflected this sentiment, with the CME Group’s FedWatch tool indicating a 95.2% likelihood of a quarter-percentage-point rate cut in November. Despite fluctuations in job numbers, Goldman Sachs sees no major cause for concern regarding weak job growth, citing high job openings and robust GDP growth as reasons for optimism. However, the brokerage acknowledged that October could present some challenges, potentially due to a hurricane and a significant strike. The latest jobs report, which saw the U.S. economy add 254,000 nonfarm payroll jobs in September, exceeded economist forecasts and served as a strong indicator of a resilient labor market. This improvement over August’s revised figure of 159,000 jobs has boosted optimism about the economy’s strength. The report also highlighted a decline in unemployment and an increase in wages, further reinforcing the positive outlook. Further bolstering the positive sentiment, the private sector’s job gains in September, as reported by the ADP National Employment Report, surpassed expectations with 143,000 jobs added. This represents a rebound in job creation after a five-month slowdown and underscores the labor market’s resilience, despite slower pay growth for those already employed and those transitioning jobs.
