Goldman Sachs (GS) has lowered its 12-month U.S. recession probability to 25% from 30%, citing a strong labor market and healthy economic activity. In addition, the firm’s financial conditions index has returned to pre-war levels.
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Recession Odds Remain Elevated as Spending Pressures Build
However, the odds of a recession are still 5% higher than before the U.S.-Iran war began and 10% above the long-term average. The firm expects the boost from tax refunds to fade over time, while higher gas prices and slowing nominal wage growth are likely to act as economic headwinds.
These factors could translate into lower consumer spending, which accounts for nearly two-thirds of gross domestic product (GDP). On top of that, the personal savings rate fell to 3.6% in March, the lowest in three years.