LIVE MARKETS-Goldman Sachs sees lower risks of US recession as economy holds up

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GOLDMAN SACHS SEES LOWER RISKS OF US RECESSION AS ECONOMY HOLDS UP

Uniform signals foreshadowing a slide into a recession have yet to emerge in the United States as tariff effects peak, according to strategists at Goldman Sachs.

Despite a sharp slowdown in the labor market, Goldman's strategists led by Kamakshya Trivedi note the U.S. economy is holding up.

"So far, the labor market has slowed, not stopped, and we have moved further through the period of maximum risk," Goldman said in a note dated September 29.

Trivedi notes signs of improvement visible in better-than-expected consumer data and scattered uptick in the housing sector among others, indicating that the overall data picture is not consistent with an imminent risk of a recession.

Even as tariff impacts remain evident, Goldman's economists believe that the "worst of the impacts are likely to be felt over the next 3-4 months, and the path beyond this period looks better."

Cracks in the U.S. labor market have become pronounced, exacerbated by President Donald Trump's immigration crackdown, which has tightened labor supply and prompted the central bank to resume its easing cycle with a quarter-point rate cut this month.

Traders are currently pricing in nearly 42 basis points of interest rate cuts from the Fed by the end of the year, according to data compiled by LSEG.

"The more time passes with the economy holding up despite a slower labor market, the more likely it is that the market will look forward to next year, where the headwinds from tariff-induced inflation and uncertainty are likely to be replaced by tailwinds from fiscal support and lower rates, which would create a continued path for equity upside," Goldman said.

The Wall Street brokerage added that U.S. equity optimism is "firmly in the air" both in terms of price action and healthy IPO activity.

(Kanchana Chakravarty)

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