Source: Wall Street See
One key reason for Goldman Sachs is that the rise in unemployment has not been accompanied by the common historical increase in layoff rates. With the slowdown in the immigration wave, Goldman Sachs estimates that the US economy only needs to create 0.15 million jobs per month in the future to maintain stable unemployment rates.
The US unemployment rate has risen and triggered a commonly used recession indicator - the "Dudley Rule", indicating that the US economy will fall into recession in the next 6 months. Citigroup previously warned that US stocks may have a 5% decline in the second half of the year.
However, Goldman Sachs offers a different interpretation on the "recession theory" caused by the rise in unemployment rate, and the latest report of the institution points out that the market has no reason to be overly concerned about it even though the unemployment rate has increased.
The analyst team led by Goldman Sachs chief economist Jan Hatzius released a report last week, stating that:
The US unemployment rate is 0.46 percentage points higher than its cyclical low when calculated on a three-month average basis. In the history of the United States, even moderate growth in the unemployment rate has evolved into a sharply increased growth accompanying economic recession.
But this time we are not too worried for three main reasons.
The first important point is that the rise in unemployment rate breaks the historical pattern. Goldman Sachs wrote:
We have observed that the rise in unemployment rate has not been accompanied by the common layoff rate increase in history, which is extremely important. It indicates that our economy has not fallen into a vicious cycle of reduced consumption due to unemployment and income loss, thereby causing more unemployment.
Goldman Sachs believes that the rise in the unemployment rate is partly due to the increase in labor supply, especially the influx of immigrants, and employment growth has not fully kept up with this pace. In addition, although labor demand has weakened, the Federal Reserve has sufficient room to cut interest rates and can take action quickly to support economic growth when necessary.
In principle, excessive decline in labor demand may only result in reduced recruitment of unemployed workers and new entrants to the labor market, and will not significantly increase layoffs at least at first. However, this situation may be a more gentle and slow-moving problem, which is different from the rapid vicious cycle of spiraling layoffs. The Federal Reserve can effectively respond to it.
According to a previous report by Wall Street News, as recession panic spreads, some traders are betting that the Federal Reserve will cut interest rates by 50 basis points in September. The market has already fully digested the forecast of at least two 25-basis-point rate cuts by the Federal Reserve this year.
The report also pointed out that some temporary labor market frictions, such as the higher unemployment rate of new immigrants and labor force redistribution caused by economic structural changes, may be one of the reasons for the rise in unemployment rate. However, these frictions are considered temporary and are expected to gradually disappear over time.
As the immigration wave begins to slow down, we estimate that the US economy only needs to create about 0.15 million new jobs per month to maintain the stability of the unemployment rate, which is similar to our forecast for the second half of the year. Therefore, our best guess is that the unemployment rate will remain roughly stable at the current level.
In the outlook for the future, Goldman Sachs predicts that as these temporary factors fade away, the labor market will return to full employment, and the range of structural unemployment rates should be between mid-3% to low-4%.
Editor/Jadyen