Goldman Sachs is pushing back on a growing view the US economy is currently mired in recession.
"We are doubtful that the economy is already in a recession," said Goldman Sachs chief economist Jan Hatzius in a new note on Monday. Hatzius contends the labor market — as seen in June's better than expected 372,000 increase in jobs — is too strong for a recessionary period.
"The official definition of recession is a judgmental mix of levels and rates-of-change across several variables, and we suspect that a period of strong labor market recovery would not qualify," Hatzius adds. "In addition, the GDP weakness in the first half has been largely driven by the less persistent and often mean-reverting components, net trade and inventory accumulation."
Hatzius reiterated Goldman's view that the US economy faces a 30% chance of recession in 2023.
While Hatzius offers a solid argument on the country not being in a recession yet, other indicators suggest the economy is either growing more slowly or outright contracting.
The Atlanta Fed's GDPNow model is now predicting a 1.2% decline in Q2 U.S. economic output. When matched with the 1.6% decline in Q1, this would meet the unofficial threshold for a recession. The official read on second quarter GDP is due July 28.
Additionally, the Conference's Board consumer confidence index for June fell following a drop in May. The expectations component declined sharply month on month, and hit its lowest level since March 2013.
"Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by yearend," said senior director of economic indicators at The Conference Board Lynn Franco.
Data from Bank of America on spending with credit and debit cards for lower-income households showed a 1% decline from last year, due in large part to higher gas prices.
Keith Banks, vice chair at Bank of America, told Yahoo Finance Live on Monday investors should tilt portfolios towards more defensive areas of the market amid these mixed economic signals.
"Even without a recession, you could see earnings at best flat and more likely down 5% to 10% next year," Banks said. "We don't think that is fully priced into the markets. As more of that gets reflected, as companies come out and pre-announce [earnings] and give additional guidance on the second half of this year and next year, the markets may begin to discount that further."