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

October 25, 2022, 10:24 AM UTC
Updated October 25, 2022, 8:34 PM UTC
Goldman Sachs CEO, David M. Solomon
Goldman Sachs CEO David Solomon onstage during Pivot MIA, Feb. 15, 2022, in Miami.
Alexander Tamargo—Getty Images/Vox Media

Good morning, Peter Vanham here in downtown Manhattan, filling in for Alan.

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


Chinese stocks

The Nasdaq Golden Dragon index suffered its biggest ever one-day drop yesterday, falling 14.4% following Chinese President Xi Jinping’s consolidation of power and the belated reporting of disappointing GDP growth figures. Big losers included Alibaba,, and Pinduoduo. The Hang Seng and CSI 300 also fell. Financial Times

Global energy crisis

The world is experiencing its “first truly global energy crisis,” International Energy Agency chief Fatih Birol said this morning, citing oil production cuts and tightening liquefied natural gas (LNG) markets. Birol described oil-production cartel OPEC+’s decision to heavily cut output as “especially risky as several economies around the world are on the brink of a recession.” Reuters

Juul bailout

The vaping firm Juul is reportedly talking to two of its biggest investors regarding a bailout that could save it from bankruptcy and help it defend the legality of its products in the U.S. Apart from its ongoing appeal against an FDA ruling that would ban its wares, Juul also faces thousands of lawsuits over its alleged marketing to kids. Wall Street Journal


Bank of America downgrades Meta, cuts price target as metaverse spending remains ‘overhang,’ by Marco Quiroz-Gutierrez

Adidas to cut ties with Kanye West after rapper’s anti-Semitic remarks turn brand into lightning rod for criticism, by Bloomberg

Two suspected Chinese intelligence officers allegedly tried to interfere with the Huawei probe. But authorities say they reached out to a double agent, by the Associated Press

Let’s not circle back on that: These 10 corporate buzzwords are the most hated in America, by Chloe Berger

We studied how economies tackle financial inclusion to see how well they might cope in a downturn. We found 4 categories—and then there’s the U.S., by Seema Shah

This edition of CEO Daily was edited by David Meyer.

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