As we move through 2024, the economic outlook remains uncertain, with varying opinions from leading financial institutions and economists. Recently, Goldman Sachs and JPMorgan Chase have presented divergent views on the probability of a U.S. recession, while Steve Hanke, a professor at Johns Hopkins University, has offered an alternative perspective based on money supply metrics. In this blog, we'll explore these differing viewpoints and what they might mean for the economy in the coming months.

Goldman Sachs: A More Optimistic Outlook

Goldman Sachs has taken a relatively optimistic stance on the U.S. economy, recently lowering its probability of a recession in the next 12 months to 20% from a previous 25%. This revision is based on strong economic data, including robust retail sales and a decline in jobless claims. Goldman Sachs' chief economist, Jan Hatzius, noted that these indicators suggest the U.S. economy is more resilient than previously thought, and if this trend continues, the recession probability could drop even further to 15%​ (Investopedia)​ (International Business Times).

JPMorgan Chase: Heightened Caution

On the other hand, JPMorgan Chase has raised its recession probability to 35% by the end of 2024. This more cautious outlook is driven by concerns over the labor market, particularly the recent rise in unemployment and signs of slowing economic growth. JPMorgan's analysis suggests that the U.S. economy might face more significant challenges in the coming months, especially as business activity shows signs of losing momentum​ (J.P. Morgan | Official Website)​ (InvestorPlace).

Steve Hanke's Monetary Approach: An Early Warning System?

Adding another layer to this discussion is Steve Hanke's approach, which focuses on the relationship between money supply and economic activity. Hanke argues that changes in the money supply can serve as an early indicator of recessions, often predicting downturns 6 to 18 months before they occur. His method, which has shown strong historical accuracy, suggests that when money supply growth slows significantly, a recession typically follows. This approach offers a potentially earlier warning than traditional methods like the Sahm Rule, which relies on unemployment data and tends to signal recessions after they have begun​.

Bridging the Perspectives

So, what should we make of these differing perspectives? Goldman Sachs' outlook reflects confidence in the current economic resilience, supported by recent data. In contrast, JPMorgan's caution is a reminder of the potential vulnerabilities that still exist, particularly in the labor market. Steve Hanke's method provides a valuable alternative, highlighting the importance of monitoring monetary conditions as a leading indicator of economic shifts.

For investors, businesses, and policymakers, considering all these perspectives can help in making more informed decisions. While Goldman Sachs' optimism might suggest room for growth, JPMorgan's caution and Hanke's early warning indicators underscore the need for vigilance in an unpredictable economic environment.

As we look ahead, it will be crucial to monitor how these different indicators evolve and what they might signal for the economy in 2024 and beyond.

References:

• Goldman Sachs Lowers US Recession Probability​ (Investopedia).
• JPMorgan Chase Raises Recession Probability​ (J.P. Morgan | Official Website).
• Steve Hanke's X post