Goldman Sachs sees one-in-three risk of U.S. recession

Goldman Sachs Group Inc. said today it saw a one-in-three chance of a renewed recession in the U.S. within the next nine months as it cut its growth forecast to 2 percent through the first quarter of 2012, chief economist Jan Hatzius wrote in a note to clients.

Goldman now sees growth averaging 1.7 percent this year, from a prior 1.8 percent forecast, Hatzius said. The world’s largest economy will expand 2.1 percent in 2012, down from a previous estimate of 3 percent, he wrote.

The U.S. unemployment rate will rise to 9.25 percent by the end of 2012, reflecting the weaker pace of growth, Hatzius said. A worsening of the European debt crisis, failure to extend the U.S. payroll-tax cut beyond 2011 and further increases in unemployment were cited as key risks to the outlook.

“Even our new forecast is subject to meaningful downside- risk,” Hatzius wrote. “Increases in the U.S. unemployment rate have historically had a tendency to feed on themselves, and this could happen again.”

Goldman expects the Federal Reserve will “provide more guidance” about the future size of its balance sheet at next week’s policy meeting, Hatzius wrote. Goldman anticipates “no rate hikes or changes in the size of the Fed’s balance sheet until 2013 or later,” he wrote.

The unemployment rate fell to 9.1 percent in July from 9.2 percent in June, the Labor Department reported today. Payrolls rose by a more-than-forecast 117,000 after a 46,000 increase in June, the report said.

The economy grew at a 1.3 percent pace in the second quarter following revised growth of 0.4 percent in the first three months of the year that was less than previously estimated, the Commerce Department reported last week. Consumer spending rose 0.1 percent, the smallest gain since the second quarter of 2009, when the recent recession ended.