The US consumer is strong and fears of a recession are 'overblown' based on the latest earnings results, Goldman Sachs says

• Goldman Sachs' Jan Hatzius says the US economy is doing fine and slowdown fears are "overblown."
• Solid second-quarter earnings and a strong July retail sales report bolstered confidence in economic stability.
• Hatzius reduced the probability of a recession to 20%, with potential for a further reduction in September.

The US consumer is doing just fine, and so too is the economy.

That's according to Goldman Sachs' top economist Jan Hatzius, who pointed to second-quarter earnings results as evidence that fears of an imminent slowdown are "overblown."

"The last couple of weeks have basically said that the economy is still doing fine. And typically when recessions occur, things happen pretty quickly. So if you see a couple of weeks of data that say the economy is still doing fine, you want to put some weight on that," Hatzius told CNBC on Monday.

Fears of an economic slowdown and potential recession were heightened earlier this month following the release of a weaker-than-expected July jobs report.

Select second-quarter earnings commentary on the consumer from some companies geared toward lower-income households also didn't exude economic confidence from investors.

But with 93% of S&P 500 companies having reported results, Goldman Sachs crunched the numbers and found that the economy is fine and a recession is not imminent.

"Reports of concern over the US consumer are greatly exaggerated," Hatzius said in a note on Sunday. "Our quantitative measure of sentiment around the consumer on earnings calls improved sequentially, sales growth at consumer-facing companies slowed bt remains healthy, and real income growth appears solidly positive across all income groups."

The bank said the second-quarter earnings are on track to grow 11% year-over-year, which was more than the expectation of 9% at the start of earnings season, and revenue growth of 2.4% after accounting for inflation remains solid.

"This adds to our conviction that economic activity is rising roughly in line with our estimate of short-term potential GDP growth," Hatzius said.

Additionally, earnings growth expectations for 2025 have jumped by one percentage point since the start of the second-quarter, which bucks the historical pattern of downward growth revisions.

A strong July retail sales report released last week also bolstered confidence in the economy and helped fuel the stock market's best weekly gain of 2024, with the S&P rising nearly 4%.

Taking all of the recent data into consideration, Hatzius reduced the probability of an economic recession to 20% from 25%, and said the odds of a recession could fall even further in early September.

If the August employment report is "ok or better we'll probably take it back to 15%," Hatzius said to CNBC.

The August jobs report will be released on September 6.