Again, recession of what?
Goldman Sachs chief economist Jan Hatzius on Monday lowered his forecast for a U.S. recession over the next 12 months to 20% from 25%.
It was just 17 days ago that Hatzius raised the chance of a recession to 25% from 15% following unexpectedly weak July jobs data.
Hatzius’ move and the unwinding of the yen carry trade sent shock waves through markets around the world.
Hatzius says the state of the U.S. economy is currently less dire than once thought.
“The economy remains strong,” Hatzius said on Yahoo Finance’s Catalyst, pointing to improving economic data and a strong earnings season.
“Decreasing recession risks have strengthened our expectation that the Fed will limit rate cuts to 25 basis points at its September meeting. This has been our expectation for a long time, but with increased recession concerns, we think a 50 basis point cut is now a realistic possibility.”
Read more: Fed forecast for 2024: Experts discuss chances of rate cut
Hatzius appears right to ease concerns.
The latest ISM services report, which includes data on business activity, new orders, employment and supplier deliveries, rose to 51.4% from 48.8% in June.
A figure above 50% is considered positive for the economy. Most of the companies in the report said their business was stable or gradually expanding.
The number of people filing new claims for unemployment benefits in the United States last week fell to a one-month low, continuing a downward trend seen just a week ago.
Also a week ago, the Commerce Department reported that retail sales rose 1% in July, the biggest increase since January 2023, fueled by a strong increase in online shopping. Sales in June fell just 0.2%.
“The consumer is hanging in there,” John David Rainey, CFO of Walmart (WMT), the largest retailer in the US, said on Yahoo Finance’s Morning Brief shortly after the company reported better-than-expected earnings.
Rainey added that the back-to-school shopping season is off to a “strong” start.
Earnings season is well underway, with most of the big name public companies comfortably beating revenue and profit expectations and avoiding any major surprises with shortfalls. The outlook is solid.
Wall Street is beginning to shake off the shock sell-off following the jobs report earlier this month, signaling to clients to re-enter calmer conditions.
“With more robust growth data, particularly in August’s jobs report, and the Fed moving aggressively to cut rates, the market view could shift from a soft landing back to Goldilocks, which could see the market momentum of the past two weeks continue into the fall. A reversal is inevitable, but that’s a prediction for another day,” Jason Draho of UBS Global Wealth Management said in a client note.
The story continues
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