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Goldman Sachs Sees Lower Recession Risk, Homebuilding Drops in Big Regions, Manufactured Goods Orders Fall

Goldman Sachs Sees Lower Recession Risk, Homebuilding Drops in Big Regions, Manufactured Goods Orders Fall

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Goldman Sachs Lowers Recession Risk

Analysts at Goldman Sachs lowered their expectations of a U.S. recession within the next 12 months to 15%, from a prior projection of 20%, as the firm joined other prominent financial firms and economists expressing increasing optimism amid lessening inflation and other factors.

“First, real disposable income looks set to reaccelerate in 2024 on the back of continued solid job growth and rising real wages,” Goldman Sachs Chief Economist Jan Hatzius said in a research note Tuesday. “Second, we still strongly disagree with the notion that a growing drag from the ‘long and variable lags’ of monetary policy will push the economy toward recession.”

Hatzius said the drag caused by Federal Reserve interest rate hikes since March 2022 will continue to fade in coming months before “vanishing entirely” by early 2024. Goldman’s 15% expected likelihood of a recession is below that of an August Reuters poll of economists, who predicted a median 40% chance of a recession in the next 12 months, down from 65% when the poll was taken in October 2022.

Goldman joins other big financial firms lowering their year-ahead recession expectations during the past month. Economists at JPMorgan Chase backed off from a prior prediction that a recession could arrive as early as this year’s fourth quarter, though the firm noted that risk was still present depending on the future direction of Fed rate hikes.

Analysts at Chase and Bank of America said a soft landing is now possible, due to factors including steady though slow growth in quarterly gross domestic product. Bank of America analysts said economic growth, along with wage and price pressures, were moving in the “right direction,” prompting the bank to predict a 45% to 50% chance of a soft landing in the next 12 months with no imminent recession.

Homebuilding in Large Areas Drops

Rising mortgage rates and construction costs are taking their biggest toll on single-family homebuilding in the nation’s largest metropolitan regions where affordable housing is needed most, according to a report from the National Association of Home Builders.

Based on its analysis of second-quarter government data, the trade group said multifamily housing construction growth rates also fell in most areas of the country, but especially in some of the nation's most populous regions.

“Multifamily and single-family construction have shifted to lower-density markets, with market share gains for those types of markets,” NAHB Chief Economist Robert Dietz said in a statement this week. “This is especially true for apartment construction, which has seen a segment share decline for large metro areas as development shifts to the suburbs and exurbs.”

The trade group said the largest core metropolitan regions as a group posted a 24.8% year-over-year decline in single-family construction rates in the second quarter. Suburban and rural areas near major cities generally posted single-digit declines for single-family building.

For multifamily building, only three categories posted positive growth rates, led by smaller non-metropolitan outlying counties or exurbs at 26.6%, large city-adjacent suburban counties at 15.9% and micro counties not near any major population hub at 3.1%. The largest core metropolitan counties as a group posted a 10.6% decline in apartment construction.

Manufactured Goods Orders Fall

Orders for U.S. manufactured goods, usually a strong indicator of industrial real estate demand, fell 2.1% from the prior month in July after four consecutive monthly increases, the Commerce Department reported this week.

New orders totaled $579.4 billion in July. About half those orders were for durable goods, generally meant to last more than three years and unchanged from the prior month at $285.5 billion. Durable goods include appliances, electronics, computers and other items that can be purchased by a consumer or business.

The government numbers arrived after a Sept. 1 report from the Institute for Supply Management, showing an overall slowdown in U.S. manufacturing activity for August. The trade group, which surveys corporate purchasing managers, said overall activity — including new orders, deliveries, pricing, employment and production output — contracted for the 10th straight month after a 28-month period of growth.

The trade group said tracked industries reporting production gains for the month included transportation equipment, industrial machinery, and food-and-beverage products. Those posting declines included appliances and components, textiles, metals and electrical equipment.

Consumer demand for many types of items has been slipping in recent months, even as supply chain snags and production cost escalation have eased from the early months of the pandemic, according to analysts.

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