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There may be a path to a soft landing after all. At the very least, that's what economists at Goldman Sachs believe, which said the Federal Reserve still has a 65% chance of preserving the financial system from a recession while bringing inflation back to sustainable levels. In a pair of client notes filed on Sunday, the Wall Street firm based its case on two pillars – that the labor market is beginning to stabilize again between supply and demand, and that the wage boom is cooling enough in two key sectors to imply that a spiral of wage spending could also be thwarted. “The chances of a recession proving necessary have fallen somewhat since the first two stages of the necessary adjustment – slowing GDP growth to a below-advantage pace and rebalancing supply and demand in the labor market – have been remarkably good to date, more positive than most. Goldman assigns a 35% probability that the economy will enter a recession next year. The firm expects GDP growth of just 0.3% in these 12 months and 1.1% in 2023. Considering that this is well above what might be expected in ordinary cases, or not, it is basically more positive than some forecasts. The CNBC All-America poll for the third quarter, released last week, showed that 68% of respondents expect the U.S. to enter a recession quickly, while 9% believe the country is already there. (The poll surveyed 800 registered voters and has a margin of error of plus or minus 3.5 percentage points.)“ Briggs discussed how inflation-adjusted spending in the alternative retail and accommodation and food service sectors indicates that customers are pulling back. At the same time, the available labor gap is narrowing, and wage growth and price inflation are cooling equally, although they are still operating at prolonged levels. ”Case histories on the retail and accommodation and food service industries strongly suggest that the path to a delicate touchdown assumed in our basic financial forecast is viable,“ Briggs wrote. Facts from different industries, however, are never so encouraging. Labor market circumstances are ”extraordinarily unbalanced“ in the industries corresponding to wholesale trade, specialized and business resources, as well as healthcare and social information, Briggs stated. Even with these imbalances, however, he said that the average development ”often helps the prospects for a soft landing.“ Similarly, Mericle noted that the chances of a Fed-induced recession through extreme interest rate hikes ”have likely increased somewhat.“ He also said that the chances of a Recession ”some unforeseen ingredient“ is also ”slightly higher than average,“ while geopolitical risks ”are also better than usual.” Markets will learn more about inflation and the state of the broader economic system later this week. Third-quarter GDP figures may come out on Thursday, with the Dow Jones consensus looking for a 2.4% increase after two consecutive negative readings in the first half of the year. Self-consumption charges inflation, the Fed’s preferred metric, hits on Friday, with expectations of a 5.2% rise in core 12-month inflation in September, compared to 4.9% in the previous month.
