Recession Chance 40% in 2012, Jobless Rate to 9.5%: Goldman
Odds that the U.S. economy will enter recession are now close to 50-50 as unemployment heads on a path higher and pressures from Europe intensify, Goldman Sachs economists said.
Jan Hatzius, Goldman's chief US economist, pegged recession chances at 40 percent and said the jobless rate is likely to surge to the mid-9 percent range in 2012.
While that still jibes with the firm's forecast that a recession — or two consecutive quarters of negative growth — is not the most likely scenario, the warning signs flashed Tuesday underscore concerns about European debt contagion on an already fragile US economy.
"Ultimately, it's a judgment call," Hatzius said during a conference call. "We're basically indicating that we think the risk is sizeable and elevated, especially given the already underway deterioration in the labor market, although it's a gradual one. Historically, U.S. business cycles have been quite vulnerable to rising unemployment and deteriorating dynamics in the labor market."
On the bright side, the forecast also correlates to others in the recession campthat the downturn is likely to be relatively brief and shallow, even if the ensuing recovery is likely to be slow.
Cyclical parts of the U.S. economy, which typically suffer the most during recessions, already are at weakened levels, so they don't have as much room to fall, Hatzius said.
At the same time, consumers also have spent the past three years since the apex of the financial crisis reducing their debt, meaning they, too, are less prone to severe shocks.
"The private sector has already made quite a lot of progress in increasing the resilience of its balance sheet," Hatzius said. "The household sector has paid down a lot of debt. The banking system has accumulated a large amount of equity especially relative to where it was five years ago."
Even if the U.S. doesn't actually see a recession, its prospects are limited.
Goldman's growth forecast is 0.5 percent for the first quarter of 2012, even though it has raised its expectations for the remainder of 2011. Hatzius said three pressures emanating from the euro zone—exports, financial conditions and credit availability—will hit the U.S.
"The obvious risk with our (non-recession) forecast is that the slowdown in growth and the associated deterioration in the labor market is going to start feeding on itself and pushes the economy into recession via the stall-speed dynamic," he said.
That would take unemployment up to 9.5 percent and "if that comes without recession it would be the first time in history that the unemployment rate has risen by more than (0.35 percentage points) without a...recession."
Elsewhere in the global economy, Goldman's forecast is mixed.
The euro zone also could enter recession or be close to it, but emerging markets should experience growth next year, Goldman economists said.