A recession next year is now even less likely following the blowout jobs report, says Goldman Sachs

• Friday's knockout jobs report has squashed fears of an imminent recession.
• The US economy added far more jobs than expected in September, and unemployment dipped to 4.1%.
• Goldman Sachs cut the chances of a recession in the next year to 15%, and other analysts cheered.

Recession fears have weighed on Wall Street recently, but Friday's blowout jobs report has assuaged worries of an imminent economic downturn.

Nonfarm payrolls, a key measure of employment, grew by 254,000 in September, crushing forecasts of fewer than 150,000 jobs. The unemployment rate also ticked lower to 4.1%.

Stocks rallied on the news with the Dow Jones Industrial Average closing at a record high.

Goldman Sachs reacted by slashing the probability of a recession in the next 12 months to the long-term average of 15%. The investment bank's economists cited unemployment dropping below a key threshold and job growth exceeding expectations.

"The upshot is that the fundamental upward pressure on the unemployment rate may have ended via a combination of stronger labor demand growth and weaker labor supply growth (because of slowing immigration," they said in a research note on Sunday.

Goldman warned in early August that the risk of recession had jumped from 15% to 25%, but cut that to 20% a couple of weeks later, citing resilient labor-market and retail data.

Other analysts issued positive research notes on Monday.

"Friday's US labor report put paid to US recession fears," Rabobank's research team wrote.

Saxo Bank's experts said the jobs data and other solid economic indicators mean there's "not much evidence in the short term that the US economy is rolling into a recession," and with interest rates expected to drop by 1.25 percentage points by June, "the market will likely say this is close to 'goldilocks' scenario."

It's worth underlining the danger of putting too much weight on a single type of economic data, let alone a single report. There are still plenty of skeptics who believe the US is barreling toward recession.

The Bureau of Labor Statistics could also revise these latest readings in the weeks ahead. But for now, the financial world is breathing easier.

Piercing the recession cloud

The specter of recession has been looming over the US economy for several years. Gobs of fiscal stimulus in response to the COVID-19 pandemic, coupled with global supply disruptions, drove inflation to a 40-year high of more than 9% in early 2022. The Federal Reserve reacted by raising interest rates from nearly zero to above 5% in less than 18 months.

The upshot for many people has been a double-whammy of higher costs for essentials like food, fuel, and housing, and steeper monthly payments on their mortgages, car loans, credit cards, and other debts.

The sharp increase in living costs threatened to curb spending, investing, and hiring, and hobble debt-reliant industries like commercial real estate and related sectors such as regional banks.

There's certainly been some pain, but inflation has cooled in recent months and touched 2.5% in August, not far above the Fed's 2% target. That spurred the central bank to make its first rate cut — a "jumbo" reduction of 50 basis points — last month.

The latest jobs report has relieved some concerns about the economy, but also dashed hopes for another jumbo cut in November. This week's inflation reading should provide a better idea of whether price growth is truly under control.

While everything from storms and strikes to wars and foreign stimulus mean there's always a chance something will go wrong, the sun appears to be peeking through the clouds. The optimistic outlook is also good news for Kamala Harris too.