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Goldman Keeps Its NFP/Unemployment Estimates Unchanged: -25,000 And 10.1%, Says This Is A U- Not A V-Shaped Recession

Tyler Durden's picture


Goldman is known for changing its estimates within 24 hours of an NFP number. Today, there is no change, and it stays at -25,000, coupled with an estimation of the unemployment rate at 10.1%. Additional, some bearish observations on the US economy via Goldman uber economist Jan Hatzius, who is now convinced this is a U- and not a V-shaped recession, follow.

In the V-shaped cycles before 1990, the end of the recession was followed by monetary policy tightening within half a year or less.  In the U-shaped cycles since then, it took 2½ to 3 years.  Our expectation is that the current cycle will resemble the post-1990 cycles, as we expect Fed officials to keep short-term interest rates near zero in 2010 and, more likely than not, in 2011 as well.


Monetary Policy Implications of U vs. V

Last week’s US Economics Analyst argued that the recovery from the 2007-2009 recession has so far looked much more like the U-shaped recoveries following the 1990-1991 and 2001 recessions than the V-shaped ones following prior postwar downturns.  This is particularly true as far as the labor market is concerned; indeed, if anything the current recovery has been even more “jobless” than the two prior ones, despite the fact that it followed a much deeper downturn.  (We will get the January employment report on Friday at 8.30 Eastern Time; our estimate remains a 25,000 drop in nonfarm payrolls and a 10.1% unemployment rate, though the uncertainty is even larger than normal as we described in Tuesday’s daily comment.)

Today’s comment looks at monetary policy in U-shaped and V-shaped cycles.  The bald historical facts are in the chart below.  It shows the time lag between the end of the recession as defined by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) and the first increase in the federal funds rate, broken down into separate lags between (1) the recession end and the peak in the (3-month moving average of) the unemployment rate and (2) the unemployment peak and the first rate hike.

The contrast between the two types of cycles could hardly be greater.  In the pre-1990s cycles, each of the two lags averaged just a few months, for a total lag between the recession end and the first hike of less than half a year in every single case.  In contrast, in the last two cycles, each lag has averaged more than a year, for a total lag of 2½ to 3 years.

Our labor market and monetary policy forecasts essentially envisage another 1991 or 2001-style cycle.  We expect the unemployment rate to peak in the first half of 2011, 1½ to 2 years after the end of the recession.  Moreover, we see no rate hikes until the end of 2011.  If short-term rates rise in the first half of 2012, that would imply a total lag of 2½ to 3 years between the end of the recession and the first rate hike, very much in line with the experience of the past two cycles.

Of course, there are a number of risks to the view that this monetary policy cycle will resemble the last two.  On the side of an earlier hike, we can see three main ones:
1. As discussed more fully in last Friday’s piece, financial conditions have eased more sharply (after a considerably bigger tightening) in this cycle than in the last two.  This could translate into a more vigorous recovery in final demand and ultimately GDP than in prior cycles.  There are some signs that this is happening in core areas of domestic demand such as personal consumption and capital spending, although they are quite tentative.

2. The level of the funds rate is lower.  At present, the target funds rate is in a 0% to ¼% range, compared with a trough level of 3% in the early 1990s and 1% in the early 2000s.  With core inflation at roughly similar levels as in the early 2000s and about 1 percentage point lower than in the early 1990s, this implies that the current funds rate is lower not only in nominal but also real terms.

3. A number of Fed officials worry greatly about the risks to inflation, inflation expectations, or another asset price “bubble” if the funds rate stays near zero for an extended period, despite the low current level of inflation and the large output gap.  If this view gains greater currency within the committee, perhaps in the wake of an updrift in inflation expectations or a sharp recovery in risky asset prices, the FOMC might decide to hike sooner.  We do not expect such an outcome, but we certainly cannot rule it out.

However, there are also risks on the side of an even later hike than in the prior two cycles:

1. The output gap is much larger than in either one of the previous cycles.  A larger output gap implies that the Fed should give the economy far more “running room” than in previous cycles.  This is the main reason why our version of the “Taylor rule” still points to a deeply negative funds rate.

2. So far, we can attribute most if not all of the growth in final demand since mid-2009 to the expansionary impact of fiscal policy.  We therefore need a large acceleration in underlying final demand to offset the waning of the fiscal impulse.  We expect such an acceleration, but it is not a foregone conclusion.

3. Unlike in previous cycles, a tightening of monetary policy need not involve a rise in short-term interest rates, at least not immediately.  The Fed’s asset purchases are slated to end later this quarter, which could lead to a tightening of financial conditions to the extent that the Fed’s ongoing flow of purchases have held down mortgage rates and long-term interest rates more broadly.  Moreover, there is a debate over whether Fed officials should ultimately sell assets outright to shrink the Fed balance sheet, perhaps even in advance of the first funds rate hike.  We neither recommend nor expect this, but we also cannot rule it out.  If it did happen, this would likely tighten financial conditions significantly and thereby postpone the first hike in short-term rates.

Jan Hatzius



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Thu, 02/04/2010 - 20:14 | 218160 Instant Karma
Instant Karma's picture

An interesting read. Did I miss the part on the continuous shedding of jobs due to a deflationary spiral brought about by increasing unemployment, decreasing demand, and decreasing tax revenues, leading to higher tax rates.

A depression, not a cyclical recession.

Fri, 02/05/2010 - 01:13 | 218510 Dr o love
Dr o love's picture

I'll take the under on the GS prediction of -25K.  They were busy shorting the market today IMO and will likely make a bundle when the S & P drops 50 handles tomorrow.  Who in their right mind would go clown long for the weekend given what's happened in the last 2 days? 

Thu, 02/04/2010 - 20:19 | 218168 Gloomy
Gloomy's picture

This market is the Street holding government hostage. Either stop trying to regulate me and resume feeding me with easy credit or I'm going all the way down.

Thu, 02/04/2010 - 20:20 | 218173 lawton
lawton's picture

It will be a double dip only because of trillions of dollars of fake money but they will have to admit its a depression after the next dip finally...

Thu, 02/04/2010 - 20:25 | 218181 lawton
lawton's picture

Has anyone done the math on how the 800K+ job loss adjustment will affect the numbers ?

The real number is 1.7 million+ off but they wont do the other current 900K+ adjustment until a year from now I guess.


Thu, 02/04/2010 - 20:32 | 218195 exportbank
exportbank's picture

I don't think it will be V or U rather \______/

Thu, 02/04/2010 - 21:40 | 218292 Anonymous
Anonymous's picture

that's a B from bathtub

Thu, 02/04/2010 - 21:45 | 218304 deadhead
deadhead's picture

how about





Thu, 02/04/2010 - 22:35 | 218361 Lothar the Rott...
Lothar the Rottweiler's picture

And now even deadhead is pissing on us.  Wasn't the gov pissing on us enough for you, man? :-)

Thu, 02/04/2010 - 21:47 | 218308 Anonymous
Anonymous's picture

The frying pan recession.

Thu, 02/04/2010 - 20:38 | 218202 Rainman
Rainman's picture

These boyz still have their rear view mirrors working......keying off the " past recessionary cycles ". 

They will never, never ever concede to the structural depression until all four tires have shredded. And so it is.... they'll just keep driving and constructing hunch recovery forecasts.

Thu, 02/04/2010 - 21:47 | 218309 deadhead
deadhead's picture

......keying off the " past recessionary cycles



Thu, 02/04/2010 - 20:39 | 218203 QuantTrader
QuantTrader's picture

goldman talking its book.  the V has already begun,  its just not a straight V


dow will finish year at 12,000.  too much liquidity.  hatzius can suck my u-shaped nuts



Thu, 02/04/2010 - 20:47 | 218217 reading
reading's picture

good luck with that

Thu, 02/04/2010 - 20:52 | 218226 QuantTrader
QuantTrader's picture

thanks.  i made the dow 11k call jan 15 2009.  granted there was a decent drawdown, but the result was nearly spot on.  


you gold bugs have no thesis if stocks dont inflate.

Thu, 02/04/2010 - 22:55 | 218375 reading
reading's picture

Wow, you're amazing...are you a real quant trader?  I mean wow.  


Ummm, btw how do you know who's a gold bug?

Fri, 02/05/2010 - 00:33 | 218484 Anonymous
Anonymous's picture

Ahahah. Really? Reeeeeaaalllly?

Have you ever been on this site?

Recognition FAIL

Ignorance WIN

Fri, 02/05/2010 - 02:21 | 218561 dnarby
dnarby's picture


But if so, it won't be priced in dollars, it will be priced in some new currency.

All the old ones are dead paper walking.

Thu, 02/04/2010 - 20:52 | 218225 lawton
lawton's picture

What ? I think we see dow 5000 before we ever see dow 12000 - 10 years or more from now....

Fri, 02/05/2010 - 01:19 | 218514 Dr o love
Dr o love's picture

I think you have one too many zero's in that DOW 12000 prediction.

Thu, 02/04/2010 - 20:40 | 218208 Anonymous
Anonymous's picture

Ssshhh, no one tell Leo.

Thu, 02/04/2010 - 20:53 | 218227 Frumundacheeze
Frumundacheeze's picture

It will be neither a U or a V, it will be a \____/\______________.

Thu, 02/04/2010 - 21:00 | 218236 QuantTrader
QuantTrader's picture

it wont be a U.  It will be a:


........('(...´...´.... ¯~/'...') 
..........''...\.......... _.·´ 

Thu, 02/04/2010 - 21:04 | 218242 Anonymous
Anonymous's picture

The Zerohedge museum of fine arts....

Thu, 02/04/2010 - 21:10 | 218252 jm
jm's picture

Nice.  Lotsa artistry in that bird...

Thanks, I needed a good laugh.

Thu, 02/04/2010 - 21:31 | 218276 DoChenRollingBearing
DoChenRollingBearing's picture

Duly copied and emailed on to legions.  Well done!

Fri, 02/05/2010 - 00:21 | 218476 Scarecrow
Scarecrow's picture

I believe that's a F-U shaped recession! Nice!

Thu, 02/04/2010 - 21:07 | 218248 Anonymous
Anonymous's picture

It's a trap.

Thu, 02/04/2010 - 21:13 | 218253 Anonymous
Anonymous's picture

Herbert Obama Hoover

Thu, 02/04/2010 - 21:19 | 218262 Anonymous
Anonymous's picture

A veeee recovery "___/\___"

Thu, 02/04/2010 - 21:20 | 218263 10044
10044's picture

it will be toilet shaped.

Thu, 02/04/2010 - 23:44 | 218430 Anonymous
Anonymous's picture

It will be 'coffin' shaped.

Thu, 02/04/2010 - 21:22 | 218267 Anonymous
Anonymous's picture

The letter they need to get familiar with is the letter L

as in the next drop will bottom and stay at a lower level


where Frugality is the new Reality

Fri, 02/05/2010 - 02:50 | 218584 merehuman
merehuman's picture

anon 218267 , nail on head.  

Thu, 02/04/2010 - 21:23 | 218268 Squid-puppets a...
Squid-puppets a-go-go's picture

LOL yea, in what font exactly does a "U" look like \__________________/

Thu, 02/04/2010 - 21:40 | 218294 Anonymous
Anonymous's picture

Someone please help me with this...If the FED keeps interest rates at near ZERO for 2010 and 2011 like this note says, isnt that a virtual guarantee for MAJOR INFLATION? I understand we have deflation now, but it seems like we are being set up so when we finally leave the deflationary spiral, we just enter into an inflationary one right after. What do you think?

Thu, 02/04/2010 - 21:49 | 218312 Anonymous
Anonymous's picture

Who says it will ever recover? Every day that passes oil gets drained out of the planetary tank and with no economic activity, there is no funding for the supposed miracle that will replace it in 18 wheelers.

Planet Earth, sans oil, can support about 900 million humans. There are 6.8B now.

Fri, 02/05/2010 - 00:18 | 218471 What a mess_man
What a mess_man's picture

Hey a peak-oiler (i.e ultra-doomer!)  Man this community is great - like everyone is here now!

Thu, 02/04/2010 - 21:52 | 218314 Anonymous
Anonymous's picture

It will be an IV recession.

Thu, 02/04/2010 - 21:55 | 218319 Anonymous
Anonymous's picture

As the market tanks and all hell breaks loose again, the next round of Fed QE will be restrained at $6+ trillion (a nod to hawks). That's Hoover-level tight policy given this calamity (Great Depression only had a one-decade bubble, we had 3). So down we'll go again after a bear rally unless the Fed is willing to go ~ $15+ trillion with US sovereign to AA+.

Thu, 02/04/2010 - 21:56 | 218323 Instant Karma
Instant Karma's picture

Lets be honest: at this point, things are unravelling again. No one knows how far or how long the unraveling will go, or, over what time course. I don't believe this depression is comparable to the generic post-war recessions because of the collapse of the housing market, the banking system, and the job market. The sovereign debt explosion to buffer the economic collapse just complicates the time course of the depression. In short, there is no sign of a self sustaining recovery, although, some companies are doing well and have lots of cash and competitive moats (tech). But as the unravelling continues. people are forced to sell to cover margin calls and losses in other positions. So quality of a position doesn't matter in a sharp downdraft. People are forced to sell.

Fri, 02/05/2010 - 00:41 | 218490 Anonymous
Anonymous's picture

And gold? They are forced to sell GOLD?!?! Jeezus.

Like zerohedge has... Not espoused, spam and bullets.

Thu, 02/04/2010 - 21:56 | 218324 Anonymous
Anonymous's picture

Not a U, an eff-U.

Thu, 02/04/2010 - 21:59 | 218331 Careless Whisper
Careless Whisper's picture

If you're going to reprint bullshit from Goldman then I think you owe it to the readers to include all the Goldman disclaimers.

Thu, 02/04/2010 - 23:04 | 218399 JR
JR's picture

Here’s some Goldman insight from Marc Faber “after his recent and widely disseminated quip on CNBC that ‘Obama makes Bush look like a genius.’" It's from Faber lashes out — again | | Feb. 3, 2010.

FT quotes Faber’s latest GloomBoomDoom market commentary on "how the US can get out of its debt trap." Says FT: “The irrepressible pundit concludes that the US has basically two choices: default on obligations or massively monetize US debts and reduce the debt through inflation.” Here's Faber:

The baleful reality is that big banks, the freakish offspring of the Fed’s easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed…..

During the recent quarter, for instance, the preponderance of Goldman Sachs’ revenues came from trading in bonds, currencies and commodities. But these profits were no evidence of Mr Market doing God’s work, greasing the wheels of commerce and trade by facilitating productive financial transactions.

In fact, they represented the fruits of hyperactive gambling in the Fed’s monetary casino – a place where the inside players obtain their chips at no cost from the Fed-controlled money markets, and are warned well in advance, by obscure wording changes in the Fed’s policy statements, about any pending shift in the gambling odds.

To be sure, the most direct way to cure the banking systems’ ills would be to return to a rational monetary policy based on sensible interest rates, and an end to frantic monetization of federal debt and a stable exchange value for the dollar.”

Thu, 02/04/2010 - 22:08 | 218336 Anonymous
Anonymous's picture

What if the Fed tried to sell assets and no one was interested in buying?

Thu, 02/04/2010 - 22:29 | 218355 Catullus
Catullus's picture

I'm sure Marla is all over it.  It's really getting fun now.

Thu, 02/04/2010 - 22:36 | 218362 trillion_dollar...
trillion_dollar_deficit's picture


Thu, 02/04/2010 - 22:41 | 218367 AN0NYM0US
AN0NYM0US's picture

From Jan Hatzius on December 28, 2009

"Hatzius, 41, estimates the economy will expand 2.4 percent in 2010, and his 2.5 percent first-quarter growth forecast is half the pace Maki anticipates...the Goldman team forecasts "subpar growth" next year because "employers will be reluctant to hire" and households will exhibit "a bias toward higher saving."

Thu, 02/04/2010 - 22:42 | 218368 EconomicDisconnect
EconomicDisconnect's picture

The number tomorrow has to be a + print and thus it will be.  Rally time!!!!!

Thu, 02/04/2010 - 22:52 | 218381 Master Bates
Master Bates's picture

I just want to say that you know you've pissed some douchey goldbug off when they mark every single post you make as junk.

So I just wanna say GOLD BITCHEZ!!!!  AHAHAHA...

Now flag my post as junk like a biotch and cry about your losses.

Thu, 02/04/2010 - 23:00 | 218395 reading
reading's picture

wow, do you need to take your medication?  

Thu, 02/04/2010 - 23:19 | 218406 Hephasteus
Hephasteus's picture

He's just young. Smart but young. He'll have more confidence as he goes.

Fri, 02/05/2010 - 01:30 | 218528 Master Bates
Master Bates's picture

Thanks for the compliment buddy!

I was just noticing that every post I make has "flagged as junk" by it.  It kinda pissed me off, and I know what "enemies" I've made.

But yeah, I should be less... abrasive. 

Still, it really makes my day that the smart people at this place would consider me as smart!  I consider most of the people here to be much smarter than I...

Fri, 02/05/2010 - 02:25 | 218562 Hephasteus
Hephasteus's picture

No we're all idiots. But together and with talking things back and forth we are not quite such idiots. Sometimes this place even pops out fucking flamestorms of burning phospherous roadflares in the darkness. It's polythic concious versus monolithic conciousness. Monolothic conciousness promotes parroting and sheep and all that crap. Polythic conciousness is much much more capable and that scares the crap out of people who want to dominate and turn people into parrots.

Fri, 02/05/2010 - 02:54 | 218587 merehuman
merehuman's picture

 i like you, and i am a silver bug. Better , i am a truth bug with less than high shool education. Butr i am learning from all you folks and am thankful. So , yea THANKS to YOU  ALL.

Fri, 02/05/2010 - 08:35 | 218691 reading
reading's picture

Hey, you've had a few posts in a row without a flag!  Congrats!

Thu, 02/04/2010 - 22:53 | 218382 EconomicDisconnect
EconomicDisconnect's picture

gold is bad now?  I missed the memo.

Fri, 02/05/2010 - 00:28 | 218481 What a mess_man
What a mess_man's picture

We can and will argue forever about gold, it's intrinsic value (or lack thereof), how it acts as a 'store of value', yadda yadda blah  this is a deflationary depression and gold will take its hit with everything else.  It's in the damn woodshed right now!   Down to 8% gold now.  Damnit there's nowhere to hide

Thu, 02/04/2010 - 23:35 | 218422 Anonymous
Anonymous's picture

Further to my post above

Rudi Oct. 14 2001 Anthrax emergency (note the breaking news crawl on this CNN clip)it seems like it was in another lifetime

Thu, 02/04/2010 - 23:54 | 218443 foxmuldar
foxmuldar's picture

Obama is already covering his ass again. Today I heard talk that the recession at the beginning was deeper then they had thought. They already know the numbers are going to be bad tomorrow and are preparing to roll out the liberal media to blame it all on the past administration once again. Meanwhile there working on another stimulus bill but now they want to call it a jobs bill. WTF was the first stimulus for?  Its just more good money being added to the slush fund. Instead of a V or U shape, whats wrong with calling it a double dip shape? Going back down again.

Fri, 02/05/2010 - 02:31 | 218569 Anonymous
Anonymous's picture

Crater shaped.

As for the Au skeptics, maybe take a longer-term view:!-Global-Systemic-Crisis-The-Decade-2010-2020-Towards-a-knockout-victory-by-gold-over-the-Dollar_a4201.html

There were few, if any, asset classes that performed better over the interval in the table.

Fri, 02/05/2010 - 05:44 | 218643 theprofromdover
theprofromdover's picture

My money is on an armchair recovery

(down, along, down..........)

All those dreamers that visualise any kind of pick-up at all obviously never look at what drove the boom -unrestricted and uncritical credit.

They think they can replace the invention of money by asset inflation, with printing beautiful new dollars, and the gravy train picks up again ............. ?

No reason to be optimistic at all, unless you also believe in the massaged figures.


Fri, 02/05/2010 - 09:06 | 218706 Translational Lift
Translational Lift's picture

The W-house has been awfully quiet for the last day.....must be doing some last minute arm-twisting to get a favorable jobs report......With the market's hand on the toilet flusher they must be sweating their collective asses off....

Fri, 02/05/2010 - 10:07 | 218742 Translational Lift
Translational Lift's picture

Bloomberg:  "  Unemployment rate UNEXPECTEDLY drops to 9.7 even though NFP dropped more than expected".  Wow, I wonder how that could have happened?

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