Goldman Sachs sees only a 35% chance of a recession, thanks to a quirk of the labor market. ‘This has never happened before’

Call Goldman Sachs smart or call it contrarian, but just as most CEOs and economists are convinced the U.S. economy is barreling toward a recession, the bank is sticking with the opposite view. It only sees a 35% chance of a recession and says we have a “unique” rebalancing of the labor market to thank for it.

“We’re still on the optimistic side,” Daan Struyven, co-leader of Goldman’s global economics team, told me in an interview on Monday. “A lot of things have already gone right. And if we look at the types of recessions, and why they happen, I would say we don’t ‘need’ one right now.”

The main reason for his team’s continued optimism, Struyven pointed out, is a never-before-seen dynamic in the labor market right now: Rather than shedding actual jobs, companies have so far been shedding job openings in response to the Fed’s rate hikes. Until now at least, this has allowed the job market to cool off without doing much harm to the broader economy.

“This has never happened before,” he said. In fact, he added, “the drop in the job openings rate is more than twice as large as the largest drop we have ever seen outside of a recession.”

It even led Goldman to introduce a new term in its recession playbook: “excess jobs,” defined as the difference between the number of job openings and the number of unemployed. Seen through the prism of excess jobs, the inflation versus recession debate gets a new dimension.

In the first instance, “excess jobs” skyrocketed after the pandemic, peaking at 6 million in the spring of 2022. This surge contributed to the inflationary wage spiral of the past 18 months. With the recent Fed rate hikes, the number of excess jobs fell already back to 4 million, thanks mostly to scrapped job openings. And if excess jobs ease further to 2 million, wage growth should fall back to acceptable levels. 

“It’s pretty amazing, and that goes against what Larry Summers and Olivier Blanchard predicted,” Struyven commented. “[Inflation] reduction can come in the form of lower job openings, as opposed to job cuts.” (Summers last month called a recession “inevitable,” and earlier this month agreed with Blanchard that unemployment needed to rise to 6% to combat inflation.)

Of course, we aren’t there yet, Struyven acknowledged. Wage growth and price inflation are still not where they should be. Moreover, supply side issues in other markets, such as energy, remain. It’s why Goldman still puts the risk of recession at roughly one in three.

But Goldman’s notion that the U.S. may have access to yet another “get out of jail free card,” in the form of canceled job openings, is yet another remarkable feature of this unique post-COVID economy.

More news below. 

Peter Vanham
@petervanham
peter.vanham@fortune.com

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This edition of CEO Daily was edited by David Meyer.