Inflation is becoming less surprising 🤔

- Plus: There is a complex but optimistic picture for M&A activity in 2023. Enjoy some of the top intelligence from Goldman Sachs. --------------------------------------------------------------- Happy new year! We hope your 2023 is off to a good start. In the first edition of this year's newsletter: - We look at some of the [big questions facing the U.S. economy]( over the next 12 months. - Two entrepreneurs talk about their mission to [build the "most powerful network of women in the world."]( - Enjoy [our first Briefings quiz of 2023](. Good luck! (Was this newsletter forwarded to you? [Sign up now.]( --------------------------------------------------------------- Can the US avoid a recession in 2023? The threat of a U.S. recession remains in 2023. Consensus estimates put the probability of a recession in the next 12 months at 65%. But David Mericle, our chief U.S. economist, and Alec Phillips, our chief U.S. political economist, believe the risk of recession is lower. They answer some of the [big questions facing the U.S. economy in 2023]( - Goldman Sachs Research pegs the probability of a U.S. recession at 35%. “Our most out-of-consensus forecast for 2023 is our call that the U.S. will avoid a recession and instead continue progressing toward a soft landing,” Mericle and Phillips wrote in a recent report. - Mericle expects the jobs-workers gap — defined as total labor demand minus total labor supply — to narrow steadily next year, due mainly to a further drop in job openings but also to a limited increase in the unemployment rate to just over 4%. - The long-awaited recovery of supply chains is likely to push core goods inflation into negative territory this year, driving most of the decline in overall core inflation, according to Mericle. - Phillips sees the risk of a recession and the need to raise the debt limit as the two factors that have the potential to influence fiscal policy changes in 2023. However, major changes are unlikely, he says. --------------------------------------------------------------- M&A will likely bounce back in 2023 Despite a slowdown in mergers and acquisitions activity in 2022, [deal-making is likely to pick up in 2023]( according to Goldman Sachs Investment Banking's global co-heads of M&A, Stephan Feldgoise and Mark Sorrell, who spoke with Goldman Sachs Research's Allison Nathan on the[latest episode of Exchanges at Goldman Sachs](. The underlying drivers of M&A are still strong. “The trend of technology shift is still there,” Sorrell says. “Arguably, it's accelerating. The focus on ESG is still there. Arguably, it is also accelerating. The trend of simplification has definitely been accelerating through 2022. And on the private capital side, the amount of liquidity in the system is as high as it's ever been. The need to deploy is there. So, when you think about the underlying drivers that we've seen in the post-Covid M&A world, I think they're at least as strong as they were,” he says. “What is different is, one, the financing market. And clearly, the macro is also more uncertain.” Corporates are seeking simplicity. “An important part of the market in 2022, and frankly, for the last several years has been what I'll call the structured transaction. That could be a spinoff. That could be a split-off,” Feldgoise explains. “That's driven by a number of things. One, investors feel strongly that it's much easier and more digestible for them to invest in companies where they can view a single sector and say, ‘Is that going to be a beneficiary or one that I might not want to invest in?' So, simplification is going to get a big investor focus.” There is optimism about the path ahead. “Financing is going to come back. It's a question of when. Because the world needs investment. And to make those investments, the capital has to be provided to where the opportunity sits,” Feldgoise says. “As we think about long-term cycles and what has really driven an M&A boom over, not just last year, but decades — and we expect [this trend] to continue — is that the repositioning and the volatility and the dynamics requiring massive investments persist. And this is where we play a role: How does capital get allocated? It's through financing. It's through M&A. It's through investment by private equity funds.” --------------------------------------------------------------- Inflation may have peaked in 2022 Not only did global inflation increase rapidly in 2022, but forecasts increasingly missed the mark. An “inflation surprise” is the difference between the actual inflation rate and the median of forecasts collected a month before the data release. In early 2022, those inflation surprises kept getting bigger. But now the gaps seem to be getting smaller. Over that last few months, global inflation surprises have swung broadly negative, indicating price increases have cooled more than many economists expected. --------------------------------------------------------------- Meet the duo building the ‘most powerful' network of women Two female entrepreneurs are working hard to level the playing field for women in business, [according to a recent episode of Talks at GS](. Carolyn Childers and Lindsay Kaplan, the co-founders of Chief, a professional network focused on connecting female executives, have a clear goal: “to build the most powerful network of women in the world.” Above (L to R): Lindsay Kaplan & Carolyn Childers of Chief. They're making good progress, they told Goldman Sachs' Asahi Pompey, during a recent Talks at GS event. While only around 8% of Fortune 500 companies have a female CEO, 80% of Fortune 100 companies now have employees who are Chief members. The network has attained unicorn status and has approximately a 60,000-person waiting list. “Chief's mission is really to change the face of leadership, which at its heart is changing the representation of what senior leadership looks like,” Childers says. “It's going to take almost over 100 years before women reach parity in senior executive levels.” But they're not easing up. “One of our core values is time travel,” Kaplan says. “We need to figure out how to make sure we are changing those numbers as quickly as possible because my clock is ticking and I would like to see those numbers change.” [Find out more about Chief's mission.]( --------------------------------------------------------------- Briefings brainteaser: A rough year for stocks Which market event caused the worst day for the S&P 500 in 2022? A) July employment numbers B) May 4 FOMC meeting C) April corporate earning results D) August CPI inflation data [Check your answer here.]( --------------------------------------------------------------- ICYMI: In the media [Bloomberg]( January 5 [Goldman Sachs is 'relatively constructive' on Japan (5:24)]( [Reuters]( January 4 [Goldman Sachs dealmakers see M&A recovery in second half of 2023]( [CNBC]( January 3 [Goldman Sachs' Jeffrey Currie's bullish outlook for commodities in 2023]( --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. To the extent this newsletter includes material from the Goldman Sachs Global Markets Division, please [click here]( for information relating to Global Markets Division material and your reliance on it. To the extent this newsletter includes material from Goldman Sachs Asset Management, please [click here]( for additional disclosures. [Click here]( to unsubscribe. © 2022 Goldman Sachs, All rights reserved. 200 West Street, New York, NY 10282, USA --------------------------------------------------------------- [GS.com]( | [Careers Blog]( | [Privacy and Security]( | [Terms of Use]( [Twitter](