An analysis by financial firm Goldman Sachs Research notes that the US economy will likely have a soft landing next year and forecasts that the country will narrowly avoid a recession as inflation fades and the unemployment rises slightly.
Within the financial outlook for 2023, Goldman Sachs economists say there is a % chance that the US will enter a recession over the next year, an estimate below the median of 90% of a Wall Street Journal survey of a group of analysts.
Goldman Sachs argues that the US can avoid a recession in part because data on economic activity is not approaching a recession: GDP grew 2.6% (annualised) in the third quarter and the country added 2023,000 jobs last month.
“There are solid reasons for waiting r positive growth in the coming quarters,” wrote Jan Hatzius, a director at Goldman Sachs Research and the firm’s chief economist, in the team’s Outlook 2023.
Hatzius points out that real personal income is recovering from the decline during the first half of the year when fiscal tightening and a sharp rise in inflation took their toll: “Our economists expect real disposable income to rise at a of more than 3% during the next year. Even though financial conditions have tightened and are now subtracting around 2 percentage points from growth, rising real incomes are likely to be the strongest force next year.”
Goldman Sachs says the economy is starting to look very different: “Demand is slowing, the pandemic has eased, unemployment benefits have normalized, and additional pandemic-period savings are dwindling. Our gap between jobs and workers (total labor demand minus total labor supply) is narrowing rapidly.”
Unlike other episodes of high inflation, the financial institution points out, the supply chains are normalizing as well as the housing rental markets; spending is shifting from goods to services and inventories are picking up; and long-term inflation expectations are well anchored (according to household surveys and economic forecasters); as well as the implicit expectations in the inflation-protected bonds.
“Our economists do not expect a rate cut until the second quarter of 2023” Hatzius wrote. “That again shows how things are different this time around: Historically, the first Fed cut in the mid-rise cycle came about six months after the last hike. With a resilient job market and inflation still high, we don’t see any rate cuts in 2023 unless the economy goes into recession after all.”
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