US recession outlook: Earnings results show slowdown fears are overblown

The American consumer is doing well and so is the economy.

At least that’s what Goldman Sachs chief economist Jan Hatzius says, pointing to second-quarter financial results as evidence that fears of an impending slowdown are “overblown.”

“The last few weeks have basically said the economy is still doing well. And typically when you get into a recession, things happen pretty quickly. So if you see a couple weeks of data that says the economy is still doing well, you want to give that some weight,” Hatzius told CNBC on Monday.

Fears of an economic slowdown and potential recession intensified earlier this month following the release of a weaker-than-expected jobs report in July.

Selected comments on consumer earnings from some companies targeting lower-income households also failed to inspire investor confidence.

However, with 93% of the S&P 500 companies reporting results, Goldman Sachs crunched the numbers and concluded that the economy is doing well and a recession is not inevitable.

“Reports of concerns about the U.S. consumer are greatly exaggerated,” Hatzius said in a note Sunday. “Our quantitative measure of consumer sentiment during earnings calls improved Sequentially, sales growth at consumer-facing businesses has slowed but remains healthy, and real income growth appears solidly positive across all income groups.”

The bank said second-quarter profits would rise 11% year-on-year, matching the 9% increase expected at the start of the earnings season. Revenue growth of 2.4% after adjusting for inflation remained solid.

“This strengthens our belief that economic activity is growing broadly in line with our estimates of near-term potential GDP growth,” Hatzius said.

Moreover, expectations for 2025 earnings growth have risen by one percentage point since the start of the second quarter, bucking the historical trend of downward growth revisions.

Last week’s strong July retail sales report also bolstered confidence in the economy and helped fuel the stock market’s biggest weekly gain of 2024, with the S&P rising nearly 4%.

Taking into account all the latest data, Hatzius lowered the probability of an economic recession from 25% to 20% and said that the probability of a recession could fall even further by early September.

If the August jobs report is “okay or better, we’ll probably get back to 15%,” Hatzius told CNBC.

The August employment report will be released on September 6.