Goldman’s Lloyd Blankfein warns of ‘very, very high risk’ of recession – Financial Times
Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc., urged companies and consumers to prepare for a US recession. He said the Federal Reserve has the tools it needs to tamp down inflation.
Goldman’s economists cut their growth forecasts for this year and next, but are optimistic a sharp rise in unemployment can be avoided.
Blankfein noted that inflation will go away as supply chains unsnarl and Covid-19 lockdowns in China ease, but that energy prices are “a little bit stickier” than inflation caused by globalization.
What are the warning signs of a recession?
While there are often clear indicators that point to the economy’s future, many of those indicators have been substantially disrupted by the fiscal, monetary, and other policy decisions made over the past couple of years. So, it is difficult to decipher economic warning signs.
Consumer confidence and spending are important indicators of economic decline, and concerns about a recession can lead to consumers cutting back their spending, which can then lead to a recession.
The consumer is under pressure due to inflation and the personal saving rate is below pre-COVID levels. Credit card balances are up by 20.7% in February. March numbers which were recently reported were just as bad.
Increasing inflation and commodity prices are warning signs of a pending recession. As consumers struggle to keep up with the basic costs of living.
Then there are interest rates adding additional pressure:
The relationship between the yield on a two-year note and a 10-year note is a good prognosticator of economic strength. A flattening yield curve indicates that investors believe there is a lot of short-term economic risk.
An inverted yield curve indicates a potential recession, and the spread between the yields on two-year notes and the yields on 10-year notes is currently around 34 basis points.
What about manufacturing?
The manufacturing industry is slowing down because consumers and businesses are expecting to buy less.
The unemployment rate is only 3.6%, and there are 1.8 jobs open for every American looking for work. The quits rate was 4.25 million in January, which is a robust rate but the lowest since October 2021.
The issue with the rosy unemployment data and job openings is many of those openings are in service and hospitality. Jobs that may go away with consumers spending less on discretionary things like travel and restaurants and spending more to buy groceries and keep up with soaring rent.
What comes next could be similar to the 89-90 recession or in a more bearish scenario the ’08 banking and housing crisis. It is really going to depend on how the average person can weather the cost of living adjustment under rapid inflation.
For more on this story check out these sources:
- Goldman’s Lloyd Blankfein warns of ‘very, very high risk’ of recession Financial Times
- Goldman’s Blankfein Says US Should Prepare for Recession Bloomberg Markets and Finance
- Goldman’s Blankfein Says Companies Should Prepare for Recession Bloomberg
- ‘Face The Nation’: Former Goldman Sachs CEO Lloyd Blankfein Says Economy At Risk Of Recession Deadline
- Ex-Goldman CEO says recession possibility is ‘very high risk factor’ Reuters
- View Full Coverage on Google News