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HousingWire Magazine: December 2021/ January 2022

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Politics & MoneyInvestmentsMortgage

Goldman Sachs economist claims little chance of recession in the next 3 years

Daan Struyven's research indicates the U.S. economy is only midway through its expansion

Goldman Sachs is calling bull on all the bearish naysayers out there.

According to an economist from the investment bank, the U.S. is only in the middle of its economic expansion and the possibility of a recession in the next three years is “below average.”

According to a report from CNBC, Goldman economist Daan Struyven ran a model against the U.S. economy to check for signs of overheating and came back with a hopeful prognosis.

"The good news is that the model still classifies the expansion as mid-cycle," Struyven said in a note.

"It sees the pickup in wage and price pressures as still too muted for an inflation overshoot late-cycle and screens the private sector saving surplus — which now stands above the historical average — as too large for a financial overshoot late-cycle," he added.

In English, that means the economy is not overheating.

Up until now, the consensus among economists has been that these fat years will turn skinny by 2020, but Struyven says there are some factors ensuring the health of the U.S. economic expansion.

Struyven says the wage growth and slowly climbing rate of inflation that have made people clutch their wallets a little tighter in anticipation of the next recession are contained and unlikely to strain the economy.

And Though the Federal Reserve has taken some Presidential flak for its seemingly timid decision to gradually increase interest rates, Struyven says this is exactly what is keeping the expansion healthy.

“Cyclically, the financial system and the economy have spent a long time climbing out of the deep hole torn by the crisis and Great Recession," he wrote.

"And structurally, better anchored inflation expectations allow the Fed to increase interest rates at a more gradual pace than in past cycles," he added.

Struyven says there is a danger that continued strong growth could push the economy from mid-cycle to late-cycle quicker than anticipated.

"The less good news is that further strong growth could push us to a late-cycle setting relatively soon," he said.

"The labor market is already there, and it would not take much additional wage and price acceleration for the model to indicate an inflation overshoot late-cycle. A financial overshoot late-cycle diagnosis is slightly further off, despite the telltale high levels of confidence," he added.

But even if this happens, the risk of a full-blown recession is "muted in the near term and below average at a three-year horizon," Struyven said.

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