The risk of a recession could be tied directly to the economic health of the consumer, and the consumer remains quite healthy, according to a panel of economic experts assembled by Goldman Sachs Global Investment Research for a recent webinar.
“Consumers are in very good shape with a lot of cash on hand,” said Richard Ramsden, business unit leader of the financials group wiithin Goldman Sachs' Global Investment Research Division. Ramsden oversees the universal and large-cap banks sector for the firm.
“Consumers do not default on credit payments [a key element of a recession] unless they lose their jobs, and that will not happen now. They are coming into the current downturn with good balance sheets,” Ramsden said during the webinar, called “Weighing Recession Risks in the U.S. Economy: How Should Investors Think About It?”
The U.S. Secretary of Labor Marty Walsh reported today that 528,000 jobs were added to the labor market in July, which far surpassed expectations. He called the addition an “exciting surprise,” which meant the economy has not only recovered jobs lost in the pandemic but is adding more.
Chris Hussey, a member of the U.S. research management team and head of research merchandising within Goldman Sachs' Global Investment Division, moderated the webinar. He was asked whether there is such a thing as a full-employment recession. “I don’t think we know the answer to that yet,” he said.
Another positive economic sign is that banks reported solid financial trends last month, Ramsden added.
“In the 2008-2009 financial crisis, the banks were front and center in the problems because they were underleveraged. That is not true now,” he said. “Banks are in better shape now with a high level of liquidity. If there is a recession coming, it will not be as bad as 2008.”
Goldman Sachs feels the country is a little less likely to go into a recession than the firm previously predicted, Hussey said. Goldman’s economic team has said there is a 48% probability of recession in the next two years and that there will be a soft landing at the end. That probability has already been priced into the market, Ramsden added.
Another key indicator for the health of the economy, and therefore the markets, is the level of spending and advertising on e-commerce, according to Eric Sheridan, the senior equity research analyst covering the U.S. internet sector within Goldman Sachs' Global Investment Research Division..
E-commerce revenues “fared quite nicely in the second quarter,” he said. E-commerce experienced a speeded up growth rate during the pandemic and now has returned to pre-pandemic levels, but it’s “back on the upward trend level seen before the pandemic.”