Also: Chinese stocks, global energy crisis, and Juul's bailout plea.
Good morning, Peter Vanham here in Downtown Manhattan, filling in for Alan.
Call Goldman Sachs smart or call it contrarian, but just as most CEOs and economists are convinced the U.S. economy is barreling towards a recession, the bank is sticking with the opposite view. It only sees a 35% chance of a recession and says we have a “unique” rebalancing of the labor market to thank for it.
“We’re still on the optimistic side,” Daan Struyven, co-leader of Goldman’s global economic team told me in an interview on Monday. “A lot of already things have already gone right. And if we look at the types of recessions, and why they happen, I would say we don’t ‘need’ one right now.”
The main reason for his team’s continued optimism, Struyven pointed out, is a never-before-seen dynamic in the labor market right now: rather than shedding actual jobs, companies have so far been shedding job openings in response to the Fed’s rate hikes. Until now at least, this has allowed the job market to cool off without doing much harm to the broader economy.
“This has never happened before,” he said. In fact, he added, “the drop in the job openings rate is more than twice as large as the largest drop we have ever seen outside of a recession.”
It even led Goldman to introduce a new term in its recession playbook: “excess jobs,” defined as the difference between the number of job openings and the number of unemployed. Seen through the prism of excess jobs, the inflation vs. recession debate gets a new dimension.
In the first instance, “excess jobs” skyrocketed after the pandemic, peaking at 6 million in the spring of 2022. This surge contributed to the inflationary wage spiral of the past 18 months. With the recent Fed rate hikes, the number of excess jobs fell already back to 4 million, thanks mostly to scrapped job openings. And if excess jobs ease further to 2 million, wage growth should fall back to acceptable levels.
“It’s pretty amazing, and that goes against what Larry Summers and Olivier Blanchard predicted,” Struyven commented. “[Inflation] reduction can come in the form of lower job openings, as opposed to job cuts.” (Summers last month called a recession “inevitable”, and earlier this month agreed with Blanchard that unemployment needed to rise to 6% to combat inflation.)
Of course, we aren’t there yet, Struyven acknowledged. Wage growth and price inflation are still not where they should be. Moreover, supply side issues in other markets, such as energy, remain. It’s why Goldman still puts the risk of recession at roughly one in three.
But Goldman’s notion that the U.S. may have access to yet another “get out of jail free card,” in the form of cancelled job openings, is yet another remarkable feature of this unique post-COVID economy.
More news below.
Peter Vanham
@petervanham
peter.vanham@fortune.com
|
|
|
Leaders Follow Fortune - Be Better at Business for just $1 Subscribe to Fortune.com today and unlock market-moving business news, our iconic lists and rankings, including the Fortune 500, exclusive investment guides and more. Try Today |
|
|
Chinese stocks
The Nasdaq Golden Dragon index suffered its biggest-ever one-day drop yesterday, falling 14.4% following Chinese President Xi Jinping’s consolidation of power and the belated reporting of disappointing GDP growth figures. Big losers included Alibaba, JD.com, and Pinduoduo. The Hang Seng and CSI 300 also fell. Financial Times
Global energy crisis
The world is experiencing its “first truly global energy crisis,” International Energy Agency chief Fatih Birol said this morning, citing oil production cuts and tightening liquefied natural gas (LNG) markets. Birol described oil-production cartel OPEC+’s decision to heavily cut output as “especially risky as several economies around the world are on the brink of a recession.” Reuters
Juul bailout
The vaping firm Juul is reportedly talking to two of its biggest investors regarding a bailout that could save it from bankruptcy and help it defend the legality of its products in the U.S. Apart from its ongoing appeal against an FDA ruling that would ban its wares, Juul also faces thousands of lawsuits over its alleged marketing to kids. Wall Street Journal
|
|
|
Workplace well-being metrics According to a Deloitte cross-industry survey, 55% of employees and 77% of C-suite executives believe that companies should be required to publicly report workforce well-being metrics. Could this be the next evolution in disclosure, and how might it impact organizations and their stakeholders? Read More
|
|
|
Sign up for The Trust Factor ✉️ The Trust Factor is your weekly guide to understanding the new KPI business leaders need to succeed, from gaining consumer confidence to mitigating digital risk. Get it delivered to your inbox |
|
|
Thanks for reading. If you liked this email, pay it forward. Share it with someone you know. Did someone share this with you? Sign up here. For previous editions, click here.
To view all of Fortune's newsletters on the latest in business, go here.
|
|
|
|
 |
|
