Evelyn Reynolds

Goldman Sachs has cut its probability forecast for a U.S. recession to 20% from 25%, shortly after raising it from 15%.
After holding the odds at 15% for nearly a year, economists at Goldman — and elsewhere — were spooked by a weaker-than-expected July jobs report.
However, retail sales and jobless claims readings since then have signficantly eased concerns the world’s biggest economy is heading for a recession or is already in one.

Goldman Sachs has cut its probability forecast for a U.S. recession to 20% shortly after raising it, as fresh labor market data sparked a reassessment of market views on the economy.
Economists at Goldman earlier this month raised their 12-month U.S. recession probability from 15% to 25% after the U.S. July jobs report of Aug. 2 showed nonfarm payrolls grew by a less-than-expected 114,000. That was down from the downwardly revised 179,000 of June and below the Dow Jones estimate of 185,000. 

The report triggered widespread concerns about the world’s largest economy, and contributed to the sharp — but ultimately brief — stock market sell-off at the start of the month.
It also triggered the “Sahm rule,” a historical indicator showing that the initial phase of a recession has begun when the three-month moving average of the U.S. unemployment rate is at least half a percentage point higher than the 12-month low.
Goldman initially cited this as a reason for hiking the probability of an economic downturn — but changed tack on Saturday, when it wrote in a note that it saw the odds down to 20% because data released since Aug. 2 showed “no sign of a recession.”

That included retail sales for July — which rose by 1%, versus an estimate of 0.3% — and weekly unemployment benefit claims, which were lower than expected.
The figures prompted a change in mood which was reflected in a rally in global stocks late last week.

“Continued expansion would make the US look more similar to other G10 economies, where the Sahm rule has held less than 70% of the time,” Goldman economists said Saturday, noting that several smaller economies, including Canada, had seen sizeable unemployment rate increases in the current cycle without entering a recession.
Claudia Sahm, chief economist at New Century Advisors and inventor of the rule, told CNBC that she did not believe the U.S. was currently in a recession, but that further weakening in the labor market could push it into one.
A healthy jobs report on Sept. 6 would “probably” spur Goldman to cut its recession probability back to 15%, where it had been for nearly a year before August, the bank’s economists said.
Unless another downside surprise in the jobs report takes place, Goldman will become more confident in its forecast for a 25-basis-point rate cut at the Federal Reserve’s September meeting, rather than a steeper 50-basis-point trim, they added.
Markets have fully priced in a Fed rate cut in September, but have slashed the odds of a 50-basis-point reduction to just 28.5%, according to CME’s FedWatch tool.
Rashmi Garg, senior portfolio manager at Al Dhabi Capital, told CNBC’s “Capital Connection” on Monday she expected a cut of 25 basis points “unless we see a sizeable deterioration in the labor market in the September 6 jobs report.”
— CNBC’s Sam Meredith contributed to this story. More

Luke Sharrett/Bloomberg via Getty Images

Egg prices are climbing, placing the household staple back in the spotlight as consumers stay concerned not only about inflation but the absolute level of prices.
July marked a third straight month that egg prices rose on an annual basis, a reversal from a year of relative decreases. The culprit was a continued battle against the highly pathogenic avian influenza, known in short as HPAI or the bird flu.

Prices for the vital food ingredient soared 19.1% in July compared with the same month a year prior, according to consumer price index, or CPI, data released this week. By comparison, the entire CPI basket of items rose just 2.9% over the same period.

Inflation in egg prices became a focus for consumers during the pandemic given their ubiquity in everyday cooking. Increases in eggs and other groceries have been top of mind for consumers grappling with higher costs, in turn hurting consumer sentiment in recent years.
But the latest inflationary wave appears more connected to a spike of nearly 8% from March to April, which can be tied to seasonal patterns in the bird flu. That was largest month-over-month increase since the spring of 2023.
“The short answer, we think, is related to avian influenza,” said Caitlinn Hubbell, market research analyst at Purdue University’s Center for Food Demand Analysis and Sustainability in West Lafayette, Indiana. “As unfortunate as that is, the high-path avian influenza has continued to be around.”

The bird flu had a historic outbreak in 2022 and surged once again at the end of 2023. More recently, Hubbell said resurgences in Colorado and California have hurt supplies.

Egg demand is considered “inelastic,” Hubbell said, meaning consumers will usually buy the same amount regardless of price increases. On the flip side, she noted that consumers usually won’t stock up when they see lower costs.
Inelastic items tend to see big price changes from even small changes in supply, she said. That can underscore the impact of any bird flu outbreaks on the prices customers see on grocery store shelves.

For shoppers, this has resulted in higher prices. The average rate for a dozen large, Grade A eggs topped $3 in July for the first time in more than a year, according to the Bureau of Labor Statistics.
Despite this reacceleration, prices are still more than 20% below levels seen last year. Nonetheless, the price of eggs tracked within the CPI basket is up about 42% compared with July 2021.

Looking ahead, Hubbell said price movements will hinge on the state of the bird flu. But she’s hopeful consumers can see some relief with upcoming seasons less likely to bring outbreaks.
“It’s hard to tell,” Hubbell said. “It all depends on the impact in the size and scope of HPAI.” More

Advanced retail sales accelerated 1% on the month, much better than the 0.3% estimate.
In other economic news, weekly jobless claims totaled 227,000, a decrease of 7,000 from the previous week and lower than the estimate for 235,000.
The reports come the same week as data showing that inflation eased slightly in July.

An H&M store is seen in Herald Square on July 01, 2024 in New York City. 
Michael M. Santiago | Getty Images

Consumer spending held up even better than expected in July as inflation pressures showed more signs of easing, the Commerce Department reported Thursday.
Advanced retail sales accelerated 1% on the month, according to numbers that are adjusted for seasonality but not inflation. Economists surveyed by Dow Jones had been looking for a 0.3% increase. June sales were revised to a decline of 0.2% after initially being reported as flat.

Excluding auto-related items, sales increased 0.4%, also better than the 0.1% forecast.
There was also good news on the labor market front: Initial unemployment benefit claims for the week ended Aug. 10 totaled 227,000, a decrease of 7,000 from the previous week and lower than the estimate for 235,000.
Gains in sales were propelled by increases at motor vehicle and parts dealers (3.6%), electronics and appliance stores (1.6%), and food and beverage outlets (0.9%). Miscellaneous retailers saw a plunge of 2.5% while gas stations saw receipts climb just 0.1% and clothing stores were down 0.1%.

Stock market futures rose sharply following the Thursday morning data releases, while Treasury yields spiked as well.
The report comes the same week as data showing that inflation eased slightly in July.

Prices that consumers pay for goods and services increased 0.2% on the month, and the annual inflation rate declined to 2.9%, its lowest since March 2021. At the same time, wholesale prices were up just 0.1% on the month and 2.2% on the year.
While the inflation numbers remain above the Federal Reserve’s 2% target, the data shows continued easing of price pressures that had peaked two years ago. Financial markets expect the Fed to respond with its first rate cut in more than four years when it next meets in September, though a resilient consumer could give policymakers more reason to take a measured approach to cuts.
Echoing the theme of a stable consumer, Walmart earlier Thursday reported strong earnings and sales for the previous quarter and raised its outlook, though it sounded some cautionary notes about the second half of 2024.
In addition to looking for lower rates, investors also increasingly are expecting the Fed to turn its attention from a laser focus on inflation to a broader look at potentially weakening conditions in the labor market and elsewhere.
Unemployment benefit filings numbers from the Labor Department also showed that continuing claims, which run a week behind, declined slightly to 1.864 million. A weaker-than-expected July payrolls report had stirred concern that the labor market could be weakening.
Other economic data released Thursday showed that the manufacturing picture is wobbling.
The New York Fed’s Empire State Manufacturing gauge edged higher but was still in negative territory at -4.7, slightly better than the -6 estimate. At the same time, the Philadelphia Fed manufacturing measure slid to -7, its first negative reading since January and well below the forecast for 7.9.
Both indexes measure the percentage of companies reporting expansion against contraction.

Don’t miss these insights from CNBC PRO More

The U.K. economy grew by 0.6% in the second quarter of the year, the Office for National Statistics said Thursday, in line with the expectations of economists polled by Reuters.
The print follows an expansion of 0.7% in the first quarter.
Economic growth was flat in June, in line with a Reuters poll.

A guided tour in the center of in York, UK, on Friday, June 7, 2024.
Bloomberg | Bloomberg | Getty Images

The U.K. economy grew by 0.6% in the second quarter of the year, the Office for National Statistics said Thursday, continuing the country’s cautious recession rebound.
The reading was in line with the expectations of economists polled by Reuters and follows an expansion of 0.7% in the first quarter.

Economic growth was flat in June, in line with a Reuters poll, as activity in the U.K.’s dominant services sector dipped 0.1%. Construction and production output rose by a respective 0.5% and 0.8% in the month.
The British economy has recorded slight but steady growth almost every month so far this year, as the U.K. exits a shallow recession. GDP was also flat in April, when wet weather quelled retail sales and construction output.
On an annual basis the economy was 0.9% bigger in the second quarter, against a forecast of 0.8%.
“These figures confirm that the UK’s recovery from recession picked up steam in the second quarter, despite strike action and wet weather causing activity to flatline in June,” Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said in a note.
“The UK’s strong second quarter owes more to temporary momentum from the large recent falls in inflation and a boost to consumer spending from events like Euro 2024 than from a meaningful improvement in the UK’s underlying growth trajectory,” Thiru continued.

The pace of growth is unlikely to continue into the second half amid weaker wage growth, high interest rates and supply challenges, Thiru added.
U.K. inflation rose to 2.2% in July, data published Wednesday by the ONS showed, coming in slightly below a consensus forecast of 2.3%. The headline figure had been at the Bank of England’s 2% target rate for the two months prior, helping spur the central bank’s decision to cut interest rates by 25 basis points at the start of August.
The July figures were described by analysts as supportive of consistent monetary easing through the rest of the year, despite stubbornness in services inflation.
Over the April-June period, U.K. wage growth excluding bonuses cooled to a two-year low, but remained relatively hot at 5.4%.
Richard Carter, head of fixed interest research at Quilter Cheviot, said lower interest rates should “help stimulate more economic growth by making borrowing more affordable for households and businesses” in the coming months — but noted that it would take time for the impact to be felt.
The British pound ticked slightly higher following Thursday’s GDP release, and was up by 0.25% against the U.S. dollar and 0.2% against the euro at 12:17 p.m. in London.

Improved outlook

Institutions including the International Monetary Fund, investment bank Goldman Sachs and the Bank of England have all hiked their growth forecasts for the U.K. economy in recent months. The IMF now sees growth of 0.7% this year, up from 0.5% previously.
Factors cited include the decline in inflation and reforms to planning and business rules planned by the new Labour government, which took office in July. Prime Minister Keir Starmer and Finance Minister Rachel Reeves have repeatedly stated that boosting economic growth will be the bedrock of their policymaking, setting a target for the U.K. to achieve the fastest per capita GDP growth among the Group of 7 nations.
“The new Government is under no illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth and a £22 billion black hole in the public finances,” Reeves said in a statement Thursday.
Labour is due to deliver its first budget on Oct. 30, with analysts saying the announcement will give more clarity on the government’s fiscal strategy and plans for changes to taxation and public spending.
Because of this, “it is unlikely that we will see a marked acceleration in GDP in the short term,” said Quilter Cheviot’s Richard Carter.
“For now, the economy is expected to continue on its relatively moderate growth path, bolstered by wage growth that remains ahead of inflation and the recent easing of monetary policy,” he added. More