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Goldman Sachs: "The Second Half Slowdown Has Begun"
The economic mood at 200 West has officially downshifted. In a report by Jan Hatzius, the Goldman chief economist warns that "the second half slowdown has begun." Hatzius says: "This is consistent with our long-standing forecast of materially slower growth of just 1½% (annualized) in the second half of 2010." And while the contraction has been obvious to all those without a metric ton of wool in front of their eyes, the two indicators that have broken Goldman's will were this week's NFP and ISM reports. And not only that, but Hatzius is now firmly in the Krugman camp, blaring an even louder warning that should the government cut off the fiscal subsidy spigot "there is some downside risk to our forecast of a gradual reacceleration in 2011 (to about 3% on a Q4/Q4 basis)." In other words, not only will H2 GDP officially suck, but since Goldman has now officially jumped on the Keynesian gravy train, and as Goldman has rapidly become the best contrarian indicator in the world (we can't wait for David Kostin to realize that endless economic stimulus, GDP and corporate profits are, gasp, related), it likely means that Obama will not allow for even $1 dollar of extra unemployment subsidies or state bailouts just to spite Goldman.
From Hatzius:
The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).
Manufacturing Starts to Slow…
One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-?much of which was due to a sharp decline in the new orders index from 65.7 to 58.5?is the first significant step on this path.
The June employment report also points to a meaningful factory slowdown. While manufacturing payrolls logged another (small) gain, the manufacturing workweek fell by ½ hour, as shown in Exhibit 2. This is a very big drop by historical standards?in the 4th percentile of month-to-month changes using data that go back to 1936. This may be a sign that the manufacturing sector may be losing steam even more quickly than suggested by the June ISM report.
…and the Labor Market Softened in June
Even beyond manufacturing, the June employment report was weak. This was most obvious in the household survey, where the drop in the unemployment rate from 9.7% to 9.5% was entirely due to a big decline in the labor force. A more accurate gauge is the decline in the employment/population ratio from 58.8% in April to 58.7% in May and then to 58.5% in June, shown in Exhibit 3. (We note the April number in order to illustrate that the weakness cannot just be explained by Census-related ups and downs?after all, the level of Census employment was higher in June than in April.)
But the establishment survey was also soft, despite a near-consensus increase of 83,000 in private sector employment. This number not only falls short of the pace ultimately needed to stabilize the unemployment rate, but it probably overstates the true increase in private labor demand because it probably benefited from the switch of Census workers whose contract has ended into similar private-sector work such as leisure and hospitality or temporary help services. This illustrates that the labor market is still far from ?escape velocity??gains in employment that feed into an income growth pace sufficient to overcome the headwinds from the withdrawal of the temporary inventory and fiscal boosts.
And here is the part that comes straight out of the fundamentalist Keynesian textbook:
The Risk of Fiscal Restraint
For the most part, we view the recent data as signaling that the economy is indeed slowing significantly as we enter the second half of the year, in line with our forecast. While there are risks of a sharper slowdown, the distribution of these risks still seems broadly balanced. In other words, a weaker outcome is clearly possible, but there is also some chance that the recent weakness in the numbers reflects partly noise and the slowdown ends up somewhat less serious than our forecast.
However, the distribution of risks around our forecast of a gradual reacceleration in 2011 to a Q4/Q4 pace of around 3% is tilted to the downside. The main reason for this is not so much the data, but the shift in the fiscal policy risks. As shown in Exhibit 4, we already estimate the impact of fiscal policy on the growth rate of final demand (and GDP) to turn gradually negative in 2011. But even these forecasts are based on the expectation that Congress will ultimately extend all of the Bush tax cuts except for the top two brackets, provide more funds for extended unemployment insurance, and make additional transfers to state governments. While we still believe that most of these provisions should ultimately pass, the risk that some of them?most likely the aid to state government?will fail to materialize have clearly increased in recent months.
For now, we are not making any changes to our growth forecasts. However, we will evaluate developments both in Congress and in the US economic data closely over the next few weeks to see whether any adjustments are warranted.
For all those who are keeping their fingers crossed for a few extra trillion in fiscal stimulus to kick the can down the street with no actual changes ever occurring (which is exactly what happened the last time there was a massive fiscal stimulus, and the time before, etc), we would like to quote Lieutenant Ripley: "happy to disappoint you." Of course, monetary stimuli are a different matter altogether, and we are confident that in the absence of the fiscal piggybank, the Fed will have no choice but to further destabilize trust in the currency via QE 2-X. And remember - hyperinflation is ultimately not a pricing phenomenon, it is one driven by faith in the currency. Or lack thereof.
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Market falls down, market goes boom!
I wish Tyler would run a piece on this index, already shows the US is in a recession and has been damn accurate!
http://www.consumerindexes.com/index.html
That reaffirms my belief Q3 will be negative growth...
is there an inverse correlation between economic growth and population growth?
yer but modus operandi is to wait 18 month to declare 'oh by the way, we've been in recession since over a year ago...'
those downward revisions seem to be coming ever later and later
The index was featured in a post by EB:
http://www.zerohedge.com/article/why-yield-curve-may-not-predict-next-re...
It was a very stark affirmation
And while we were sleeing, Hungary got Hungry and asked for a little nibble!
http://www.guardian.co.uk/business/2010/jul/02/hungary-bailout-eu-imf
Teeter-totter!
ORI
http://aadivaahan.wordpress.com
Bad news, upon bad news, upon bad news.
Any other time, it would have been time for the early bulls to bit.
This time, it's only going to get worse.
Trading anything at all these days is like walking in a land-mine field.
Boom!
ORI
http://aadivaahan.wordpress.com
Does anyone pay any attention to Goldman, Krugman, Bernanke, Geithner, Paulson, Greenspan or any of the other lying sack of sh*t douchebags who have destroyed our economy? We are in a Depression that was papered over with government/Fed spending and bailouts. That's all that has occured since the Fall of 2008. They know that and yet they've lied on a daily basis during that period trying to get as much profit as they can before the artificial pump job ends and they stick the sorry saps who bought their bullish bs with a bunch of overpriced shares. These people belong in their own prison where they are sod*mized on a daily basis with a broken beer bottle considering what they've been doing to Joe Six Pack the past decade.
Yes, people do listen to them. Lots of people, including the MSM. Perhaps the collapse will come when the sheeple get out of the line at Apple and realize how wrong and misguided (and ill-intentioned) their 'leaders' have been.
Alas, Lt. Ripley had only to face aliens with acid for blood and willing to rip your heart out. Facing the GS Hydra is a much more daunting task. Think Sisyphus.
Hudson: I'm ready, man, check it out. I am the ultimate badass! State of the badass art! You do NOT wanna fuck with me. Check it out! Hey Ripley, don't worry. Me and my squad of ultimate badasses will protect you! Check it out! Independently targeting particle beam phalanx. Vwap! Fry half a city with this puppy. We got tactical smart missiles, phase-plasma pulse rifles, RPGs, we got sonic electronic ball breakers! We got nukes, we got knives, sharp sticks
What I remember from Hudson was;
Thats it Man! Game over man! Game over!
http://www.youtube.com/watch?v=dsx2vdn7gpY
Mark Beck
Goldbugs enter stage right.
Newt: It won't make any difference.
i hope it has not escaped consideration that counter-austerity riots may be exactly the intended consequence of these events.
play it out... it leads to two outcomes, totalitarian (soviet) or fascist (nazi) social organization...
we would be lucky if it were just QE2... sure the middle class would be decimated, but at least those with their eyes open could have hedged against it with some sort of wealth preservation strategy... but alas, i doubt we will be that lucky.
lenin, in regards to the problem of the middle class: "we will grind them between the millstones of taxation and inflation".
remember the motto: "Ordo ab chao". there is nothing accidental about any of this...
+111111111111111111111111
Totally agree
"This is consistent with our long-standing forecast of materially slower growth of just 1½% (annualized) in the second half of 2010."
Long standing since fucking when?
Nothing accidental. There are No Coincidences.
Ramp up Stimulus II, Announce QE2, prepare for "non" bailout with new financial Regulatory Reform (Which is neither, BTW) bill, All Announced Just In Time for November Election Cycle.
We are the New Peasantry to the New Versailles.
+100 The Republic burns...
One has to ask the natural question of why Goldman is publishing this? How are they going to make money off of it?
It looks to me like they are laying the groundwork for the QE II. Which will make them boatloads of money.
And then you've got Paul Krugman helping them out in this corruption to his best extent. Why, if it fails, it's not because the Economists of this world don't know what they are talking about. Why, it's because Europe didn't spend enough! Yeah, that's the ticket! That ought to cover their Keynesian butts.
Yes, a lot of groundwork has been laid lately for stage 2, now that their flawed thinking has failed.
OT - but saw this little tidbit in my local paper this am
WILLIAMSBURG — The Virginian-Pilot is reporting that an assistant professor at the College of William & Mary has been arrested on a federal charge of enticing a minor to take sexually explicit photos of herself and send them to him through the Internet.
On Thursday federal agents and Williamsburg Police arrested 34-year-old Justin Bradley May. He made an initial appearance in U.S. District Court in Norfolk and was jailed pending a bond hearing.
The FBI in Cleveland began investigating the case when agents were notified that a 13-year-old Ohio girl had sent nude pictures of herself over the Internet. After learning that the pictures were sent to a computer at W&M, the case was transferred to the FBI’s Norfolk office.
According to an affidavit filed by FBI agent Paula Barrows, the girl initially posted a clothed picture of herself at www.talenthunter.com, a modeling website. She received an e-mail in April from someone identifying himself as “Jason Marx.” The writer claimed to have inside knowledge of the modeling industry.
The girl told the e-mailer that she was 13. The e-mailer then directed the girl to someone he claimed was a model named Nikki.
E-mails from Nikki persuaded the girl to send nude pictures of herself to that e-mail account. Nikki also offered to send a professional photographer to take modeling photos of her in exchange for sex acts, the affidavit says.
The FBI traced both e-mail accounts to May’s computer at W&M. May has been an economics professor at William & Mary since 2007, and previously served as a researcher for the governing board of the Federal Reserve System.
http://www.vagazette.com/articles/2010/07/02/news/doc4c2e2d130dca1527303...
Sure he previously wasn't a dominatrix transvestite in the Enforcement Department at the SEC?
What is the possibility the Fed won't go to QE? What if the powers that be decide they might as well take the bitter pill now? Just let it go into full blown depression to clear out the bad. Eventually, this has to happen....why not now? Granted the risk is collapse...
I imagine the hebrews at the Fed would engineer some type of destructive energy with the sole purpose of impeaching Obama if he does not follow along like a good puppet.
The Oligarchy has written the playbook on this. Either play along or they will find someone who will.
Maybe...but I could see the oligarchs saying...well it was fun while it lasted...pack up their bags of money and move to the island/bunker sanctuary, and let the whole thing collapse. It's like the Matrix where the mathmatical annomaly must be played out...the humans are wiped out except for a few and things start all over again. The Oligarchy doesn't vanish...it just gets out of the way and comes back after the dust has settled.
No way it collapses, yet.
There may be no Fat of the Land left upon which to Feast, but the Treasury's Coffers remain Worth Pillaging.
I gotta git me one of those expensive gizmos these-here smart men use to make their predictions so's I can talk more intelligent-like about this here economics situation. What's it called? Oh, that's right, a rear-view mirror.
Nobody thinks in terms of human beings. Governments don't. Why should we? They talk about the people and the proletariat, I talk about the suckers and the mugs - it's the same thing. They have their five-year plans, so have I.
I hope the W&M Economics professor likes playing the "role" of a 13 year old girl in prison! On your knees bitch.
Posted this yesterday, but worth posting again since I doubt anyone saw. Please do yourself a favor and watch last nights Paul Krugman interview by Charlie Rose on PBS.
These 2 quotes sum it up:
KRUGMAN - "The worst thing countries can do now is be austere"
ROSE - "So the world's 20 richest countries are wrong, and Paul Krugman is right?"
Sorry BK but I don't support Bilderberg members, so I won't watch good ol' Charlie.
Europe is pushing higher taxes and less spending, but isn't the answer LESS taxes and less spending?
+ 24kt.
The correct answer is more PRODUCTIVE spending and less taxes. Austerity only benefits those with the money and guess who just received it all?
Unfortunately the US government has not had the publics best interest in mind when divvying up public money.
Ironically, the US government should take a leaf out of Hitlers economic playbook. He did get Germany out of depression after all.
Come on QE ad infinitum! Daddy needs a new pair of shoes made in China!
Give me one good reason why anybody should give two shits about what Goldman has to say about ANYTHING.
Because GS is so full of BS that they are a great reverse barometer.
Absolutely. After they're short for almost 20%, they flush-out remaining longs. You nailed it. Not to say market will run as a bull, but oversold rally is being set up by The Squid. SP 1000 probably, maybe 975 at most.
As the bag man, know thine enemy.
.. it's sicko edutainment straight from God's Squid's information orifice.
GG - no-one believes their codswallop, it's just laughable to see the pseudo analytical rigmaroles that they advance to support the theory of the day.
This time they've bandwaggoned the 'weak recovery / DD' metric as if to say: "we know what's going on".
Lighten up GG, you know GS = BS, and that TD provides this for smiles.
QE 2.0 is coming. My only question is how set will deflation get before they start QE 2.0, and then when they start, how long will it take inflation to run out of control.
If there is no lending going on and the M3 money supply is shrinking how will inflation get out of control ? They will be lucky to stop major deflation soon imo.
Michael Pento thinks the Fed will stop paying interest on banks reserves, to ignite lending, fwiw.
We have a real problem. They can't allow deflation given that all the policies of the past 24 months (bailouts ect) are predicated on inflation. Were this a narative (the way the propaganda system works) the next move would be an inflationary spark (rapid rise in the price of oil) followed by a $5 Tr quantitative easing. No popular or political support for either action suggests the creation of some form of crisis to change the mood. Exigent circumstances forced us to do it you understand. The new moon windows are July 6th through 16th, August 5 through 15th and September 3rd through 13th. September is too risky as Bushir will be active so that indicates that they forcefuly change the dynamic by August or not at all. I really hope not at all but I doubt it. They are simply too murderous to let things slide. Better to start the conflagration as you can better control the outcome and the consequences. In their control freak little minds anyway.
I was reading in Dr. Stephen Leeb's book The Coming Economic Collapse (eerily predictive since it was written in 2005) last night that if energy prices skyrocket during this time (the exact situation we are in now that has panned out in his book) that the economy will come to a stand still.
Ripley: Lieutenant, what do those pulse rifles fire?
Gorman: 10 millimeter explosive tip caseless. Standard light armor piercing round, why?
Ripley: Well, look where your team is. They're right under the primary heat exchangers.
Gorman: So?
Ripley: So, if they fire their weapons in there, won't they rupture the cooling system?
Burke: [interjecting] Ho, ho, ho. Yeah, she's absolutely right.
Gorman: [turns round to Burke] So? So what?
Burke: Look, this whole station is basically a big fusion reactor...
[Gorman turns back to stare, horrified, at the screen]
Burke: ...right? So you're talkin' about a thermonuclear explosion and "Adiós, muchachos."
Gorman: Oh, great. Wonderful. Shit!
Could Goldman be right this time?
Recession??....what recession?....all I've seen in the past 2 years is a
blatant DEPRESSION. The banker thieves in control of the endless scams
have lost total control of their beast.....THANK GOD!
Lets just declare bankruptcy and tell all our national creditors to get bent
and start over!!!...its that damn simple people but we need to make sure
future corruption by money changers will be met by public execution. Same
should go for corporate crimes. Enough is enough already.
"Lets just declare bankruptcy and tell all our national creditors to get bent"
The largest creditors are american workers that have been paying social security taxes for the last 20 years.
Is Obama a wall street puppet?
http://www.youtube.com/watch?v=B6OYdqFuTrs&playnext_from=TL&videos=HJrITuL-ZBQ
Sa-wat dee, Laosuwan.
Nice. Synopsis:
The Pliable Puppet(PP), 1.5 Quadrillion dollar toxic meltdown, Neocons, Sacrifice, Obamanation has peaked, 2 half of 2010 is going to be very ugly.
Scoob:
I am waiting for the crash; I have been waiting for the crash and missed out on most of the market bounce but that's ok, I am sitting on more gold than scrooge mcduck just waiting to pull the trigger when it all goes to hell. It is going to hell, right?
Rat dri sawat
Goodfellas has the answer. When you can't borrow another dime on credit, torch the place and collect the insurance. Is GS long CDS on the US ? Of course they are...
AIG's their carrier.
We are sooooooooooooooooooooooooo fucked.
I remember Maiden Lane has some stuff in it betting the failure of certain larger states. Illinois, NY, and Florida I think. I read it in an article here somewhere.
That already happened once, what came to be known as TARP.
Updated DOW chart:
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
Many ta chartists are expecting an oversold rally. My concern is the Dow & SPX only had the RSI go to 30, not below on the dailys. That's not oversold until one more flush, then a bounce? I'm looking for SP 1000, then bounce to 1040, base of H&S. Same for Dow, bounce to neckline of broken H&S. then down again, absent rabbit pulled from hat somewhere. ISM service, initial claims, consumer credit all could be crappy this week.
About a year and a half ago we had a meeting with Hatzius and he was as bearish as you like on the US. About 2 weeks later someone obviously gave him the tap on the shoulder telling him the government ramp up was to begin and he turned from having the biggest, thickest bear coat on, to being Mr. "the world is looking great." Perhaps he just wasn't taking his Goldman prescribed Prozac ... perhaps he forgot GS was to do all the buying for the ramp up. Now, I think Hatzius is quite good, and i think he is probably right....just look for the first piece from him that starts preaching good news is here and then get your shorts back!!
Oh were it that simple. I think GS has us coming and going.
This externally released "research" is worth as much qua research as Goldman charges for it. What I would love to see is the economic intelligence used internally by the trading operations that contribute the lion's share of the firm's profit. That's probably pretty good stuff.
economic intelligence of GS? hmmmmmm, maybe just insider knowledge :)
So many "economists" on ZH predicting the world is going under scenario. So, everybody of you guys think you´re right, hum ? Well, from statistical experience I would claim that 95 % are wrong. Why ? It´s as usual, 5 % are right. I am asking myself who belongs to the 5 % ? LOL ! No offense, I am just a humble trader. I adore volatility. As long as you guys discuss the hot topics of the economy, I am placing my bets. Please create as much vola as you can with your analysis. :=) Thanks.
right. Short SPY or IWM on a break of Fri low, go long at SPY 100 using SSO to 102, 103, 104... gap-down open, ur on ur own.
GOLD daily charts are still bearish.
http://stockmarket618.wordpress.com
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