Bloomberg Interviews Goldman's Rapaciously (For The Time Being) Bullish Jan Hatzius
Jan Hatzius is the bellwether of the sellside economist crowd. When he was bearish (2009), most were bearish, when he turned bullish (early half of 2010), everyone else followed suit. Then he turned bearish again (early August 2010) and convinced his friend and former co-worker Bill Dudley to launch QE2. Then, in December, he turned very bullish again. And now we are here. We expect Hatzius to be fake bullish for another 3 months max, at which point he will have no choice than to start telegraphing to Jon Hilsenrath that it is time for QE3. In the meantime, for those who are not too familiar with his work, here is an extended interview with Bloomberg TV, in which the GS head economist talks about Goldman's call for 18% gain in stocks this year as well as trends in jobs, inflation and other data indicators.
On the Middle East and how it plays into Hatzius' economic outlook:
"It's certainly a reminder that there are still some significant risks in the global economy and of course, especially to the extent that it affects oil prices and commodity prices more generally. Having said that, our outlook for global growth and the U.S. economy is pretty positive. We think close to 5% GDP growth this year and next year in the global economy and sort of 3.5% - 4% over the next two years in the U.S. It's a reasonably upbeat view."
On global food inflation:
"[Food inflation] is certainly on our radar. It is not yet fully in the inflation data here, that 's still going to happen over the next few months. We will see upward pressure on the headline CPI numbers as the food price inflation shock feeds through. At the margin, that is going to be a drag on household budgets. Having said that, there are also a number of more positive factors pointing in the other direction and that improve household budgets, the improvements in the labor markets probably the most important of them. It is a potential negative, but I think it is being outweighed by other forces."
On unemployment levels:
"I think it's going to take a long time for the unemployment rate to get back to the pre-2007 levels. I do think that job creation is in the process of picking up. I think that is not yet as visible in the payroll numbers as is in a lot of other labor indicators like the household survey, like the jobless claims data, like the job vacancy data, like the household perceptions of job availability. None of these things are going to normalize in the short term. But I think at the margin, they are getting better. Labor market income is going to be a more important force in terms of household income than the food price inflation in the United States. Elsewhere in the world, it is going to be different. In the emerging world, food takes up a much larger share of overall household budgets and that is why it is a more acute issue."
On consumer spending:
"I think the first quarter looks a lot softer than a fourth. The number now on record for the fourth quarter is 4.4% … I think it will come down a bit in the wake of the downwards revisions to the retail sales report. I think the first quarter will be softer. Over the next year or so, I would expect something like 3.5% consumer spending growth, definitely better than what you have seen for the last few years, though not as strong as the recent spurt."
On whether this is a buying opportunity in the market:
"Our strategists are generally pretty constructive. I think it's the flip side of an economic outlook that is reasonably good in terms of GPD growth…It is not a super strong relative to the downturn we saw, but it is clearly better than we have had in the past few years. A low inflation, low rate environment, policymakers staying on the sidelines and letting that return to higher levels of employment happen for while, I think that's a fairly positive environment and the way our strategists translate it is to S&P 1500 by the end of the year."
"I'm not that worried [about inflation]. I do think the headline inflation numbers are going to be higher as the food price inflation shock does work its way through the numbers. But in terms of the underlying inflation trend, my view is there's a lot of slack in the system early in the recovery. Typically when there is a lot of slack, inflation remains very low and that is our outlook. I am probably at the margin a little more sanguine."
On job creation:
"We're expecting it by the second half of the year, 200,000 to 250,000 on non-farm payrolls. That means you move to a situation in which you sustainably create more jobs than the trend increase in the working age population, which means the unemployment rate comes down on a sustained basis. But because the starting level was so high, you are still at 8% by late 2012. It is a level verses rates of change thing. The rates of change look like it will be significantly better but the levels are unsatisfactory. That is very much true in the labor market as in other areas."
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