There's now just a 25% chance the US suffers a recession within 12 months, Goldman Sachs said Monday.
Surging job numbers contributed to the bank revising its forecast down from odds of 35%.
The US added a better-than-expected 517,000 jobs in January, according to data released Friday.
There's now just a 25% chance the US economy slips into a recession over the coming year, according to Goldman Sachs.
A combination of surging job numbers and steadily improving business sentiment led to the upgrade in forecast, the bank's economists said in a research note Monday. Previously, they saw 35% odds of an economic downturn within 12 months.
"We have cut our subjective probability that the US economy will enter a recession in the next 12 months from 35% to 25%," said strategists led by Jan Hatzius, Goldman Sachs chief economist.
"Continued strength in the labor market and early signs of improvement in the business surveys suggest that the risk of a near-term slump has diminished notably," they added.
Friday's labor market report showed that the US added a better-than-expected 517,000 payrolls in January, suggesting that hiring is proving resilient despite high inflation and rising interest rates.
Gauges of business confidence and activity have also jumped over the past month. The ISM Non-Manufacturing Purchasing Managers' Index, for one, has risen from 49.2 to 55.2, with any reading above 50 seen as a sign of services growth.
Inflation has fallen for six months in a row to 6.5% as of December, which has boosted the chances that the US economy staves off a recession, the Goldman Sachs team said.
The drop in price pressures could give the Federal Reserve a prompt to bring a halt its aggressive campaign interest-rate hikes, which cool the rate of inflation but can crush economic growth.
"Progress on price inflation has been particularly rapid in recent months," the strategists said.
Optimism about an easing in price pressures has helped US stocks make a strong start to the year. The S&P 500 was up 4% in January, after logging a 20% loss for 2022, as investors' hopes rose for a "soft landing" — where the Fed manages to cool inflation without causing significant damage to the economy.
Goldman Sachs' latest prediction chimes with recent comments from the International Monetary Fund's managing director. Kristalina Georgieva said Sunday she believes the US will narrowly avoid a recession.
"Even our revised 25% estimate is above the unconditional probability that the US economy will enter a recession in any given 12-month period, which has historically averaged 15%," Hatzius' team said.
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