Goldman Sachs has reduced the probability of the United States entering a recession within the next 12 months from 25% to 20%, following the latest reports on weekly jobless claims and retail sales.

Earlier this month, the firm had raised the chances of a U.S. recession from 15% after the unemployment rate surged to a three-year high in July, raising concerns about a potential downturn.

However, in a note released on Saturday, Goldman Sachs’ chief U.S. economist Jan Hatzius stated, “We have now lowered our probability from 25% to 20%, mainly due to the data for July and early August released since August 2, which shows no signs of a recession.”

He further added, “Continued economic expansion would make the U.S. resemble other G10 economies, where the Sahm rule has held less than 70% of the time.”

The jobless claims report released on Thursday indicated that the number of Americans filing for unemployment benefits fell to a one-month low last week. Additionally, separate data revealed that retail sales in July saw their largest increase in a year and a half.

Hatzius mentioned that if the August jobs report is “reasonably good,” he would consider lowering the U.S. recession probability further to 15%.

He continues to expect that the Federal Reserve will reduce interest rates by 25 basis points at its September meeting but did not rule out the possibility of a 50 basis point cut if the jobs report is weaker than anticipated.

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