Goldman Sachs Tuesday lowered its probability that a U.S recession would start in the next 12 months to 15% from an earlier 20% forecast.
The continued positive inflation and labor market data led to the cut, Goldman Sachs Chief Economist Jan Hatzius wrote in a note.
Jobs, Wages Strong
The investment bank said it expected reacceleration in real disposable income next year on the back of continued solid job growth and rising real wages.
It also noted the drag from monetary policy tightening will continue to diminish before "vanishing entirely" by early 2024.
U.S. consumer spending accelerated in July, but slowing inflation strengthened expectations that the Federal Reserve would keep interest rates unchanged in its policy meeting this month.
Goldman Sachs said it believed that Fed Chair Jerome Powell's "proceed carefully" approach signals that a September hike is "off the table" and the hurdle for a November hike is "significant".
Goldman added that it expected "very gradual" cuts of 25 basis points per quarter starting in second quarter of 2024.
Small Businesss Outlook
However, a survey released late last month showed more than half of U.S. small business owners believe the economy is already in a recession, marking a slight decrease between July and April, despite most firms reporting their own financial condition was strong.
The survey conducted in July from the National Federation of Independent Business focused mainly on small businesses' views on the state of banking and their credit needs, and also showed small businesses are much less worried about the health of their bank than they were in the immediate aftermath of this spring's bank failures, including that of Silicon Valley Bank.
On the economy, 52% of small business owners said they believe the economy is already in a recession, down from 55% in April, the survey found. That belief comes despite broad signs of strength across the economy and growing body of evidence that the economy could avoid a long-anticipated downturn.
Recent indicators have shown strong retail sales and rising spending on services, the two largest small business industries. Moreover, businesses see their own financial condition as strong and their local economies relatively healthy.
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