Nov 8, 2022 - Economy

Goldman Sachs economist says soft landing is possible

Illustration of a suitcase floating down with a parachute

Illustration: Aïda Amer/Axios

In a new note from Goldman Sachs, chief economist Jan Hatzius puts the likelihood of a recession in the U.S. over the next 12 months at 35% — far below some of the more dire predictions circulating.

Why it matters: While surging inflation makes the economy feel terrible and a recession seems inevitable, there are signs that a "soft landing" is still possible. It's a "narrow path," Hatzius writes.

One reason: Wages. Yes, most of us are out there lamenting that wage growth isn't keeping up with inflation. But when it comes to a soft landing, your slowly eroding paycheck is a good sign:

  • "The most encouraging recent step on the narrow path to a soft landing has been the slowdown in nominal wage growth," Hatzius writes.
  • He points to a few data sets, including Goldman's own aggregated business survey data on actual or expected wage changes, which has fallen from 5.5% wage growth to around 4% now.
  • The Employment Cost Index also turned over in the third quarter after two years of steady increases.

Also: Hatzius notes that GDP growth is slowing and the labor market is moderating in terms of fewer job openings and a falling quits rate.

  • To be sure, the labor market is still quite strong. He calls this a "modest loosening."
  • Asking rent prices are also slowing, according to private market data, as Hatzius notes. But that decline will take a while to show up in the official inflation numbers, as Fed chair Jerome Powell said last week.
  • "[T]here will come a point at which rent inflation will start to come down. But that point is well out from where we are now," Powell said.

Yes, but: No one really knows anything. "[T[he Fed is tightening aggressively, and we live in an exceptionally uncertain world in terms of both US politics and geopolitics," Hatzius writes.

What to watch: The Consumer Price Index report for October comes out Thursday.

Bonus Chart: Employment costs turned over

Data: FRED; Chart: Axios Visuals
Data: FRED; Chart: Axios Visuals
Go deeper