September non-farm payroll report shakes the market! Goldman Sachs once again lowers the possibility of a US recession

Goldman Sachs has reduced the possibility of the United States falling into recession in the next 12 months by 5 percentage points to the long-term average level of 15%, as the latest non-farm employment report showed that the U.S. labor market performed better than expected.

The U.S. Department of Labor reported last Friday that the number of new jobs added in the United States in September was the highest in six months, with the unemployment rate dropping to 4.1%.

In early August, Goldman Sachs raised the possibility of a U.S. economic downturn from 15% to 25%, then lowered this forecast to 20% in mid-August, as the labor market and consumers showed resilience.

Goldman Sachs' Chief U.S. Economist Jan Hatzius stated in a report last Sunday that the September employment report "reset the labor market narrative" and alleviated concerns about the labor demand "falling too rapidly to prevent an increase in the unemployment rate." He said, "We have reduced the possibility of a U.S. recession in the next 12 months to the unconditional long-term average level of 15%."

The Wall Street brokerage firm maintains its forecast that the Federal Reserve will cut interest rates by 25 basis points twice, with the federal funds rate expected to fall to 3.25%-3.5% by June 2025. Hatzius stated, "We now believe that the risk of the Fed cutting rates by 50 basis points again is much lower, and these data reinforce our belief that the Fed will slow the pace of rate cuts to 25 basis points in November."

In September, the Fed cut its policy rate by 50 basis points to a range of 4.75%-5.00%, marking the central bank's first rate cut since 2020.

The CME FedWatch Tool showed that before the report was released, the probability of a 25 basis point rate cut in November increased from 71.5% to 95.2%.

Despite the typically large fluctuations in non-farm employment data, the Wall Street giant stated that this data can be seen as "real data" as there are no clear signs of sustained negative revisions.

Corpay's Chief Market Strategist Karl Schamotta even believes that the scenario of the U.S. economy not landing suddenly has become more credible. He pointed out that this is a very nice employment report in terms of both overall and internal details. Over the past three months, job opportunities have continued to increase, the unemployment rate has gradually declined, and the participation rate has remained stable. "All of this indicates that this is not a statistical anomaly that could be eliminated in the coming months. Therefore, this ultimately means that bond yields are soaring at the front end of the curve, expectations of rate cuts are receding, and the current expectation is that the Fed will be more cautious on loose policy."

Hatzius noted, "From a broader perspective, we have not seen any clear reasons for lackluster job growth in a situation where job vacancies are high and GDP is growing strongly."

However, Goldman Sachs warned that October could be a particularly complex month, as hurricanes and major strikes could both lead to an "abnormal" non-farm payroll data report