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Goldman Sees 5.9% GDP Revision Dropping To As Low As 2.2%
Shortly we are going to see what will be almost certainly a downward revision to the revised 5.9% Q4 GDP number. How big will it be? According to Goldman's Jan Hatzius the real number, which will be based on an "income side" calculation of GDP as opposed to an expenditure, will be about 2.2%, a more than 50% drop from the expected revision of 5.8%. Will the government allow such a GDP indication? Of course not as that would completely kill the stock market rally which is the only thing the administration has going for it. Yet the numbers don't like. As Rosenberg demonstrated Q3's GDP was about -7% absent the government's stimulus. Even with it, it appears at the economy, when all is said and done, will have managed to eek out just a barely positive number. Take that out and you are again left with a mid single digit negative number. And this is the basis for a sustainable rebound? What it certainly will be the basis for, is another percent or two on the S&P as the last remaining short capitlate as State Street recalls whatever shares are outstanding to allow Citi smooth sailing after the government sells several tens of billions of worthless Citi stock.
How Strong Was GDP Growth Really in Q4?
On Friday, the Commerce Department will release its first estimate of fourth-quarter GDP as measured from the “income side” of the national accounts. This will provide a useful crosscheck on the higher-profile “expenditure side” estimate that real GDP grew 5.9% (annualized) late last year, which itself might be revised slightly. Although the two measures are conceptually equivalent—that is, any differences must be due to statistical errors in one or the other—recent work at the Federal Reserve Board suggests that the income side is often more accurate than the expenditure side.
We expect the income side number to fall short of the 5.9% expenditure side estimate. A weaker number might dampen expectations of a strong labor market rebound in 2010, which are partly based on the strength of the expenditure side GDP data in late 2009. Our own view remains that employment growth will be insufficient to push down the unemployment rate on a sustainable basis in 2010, although we expect Census hiring to result in strong headline job growth in coming months (including a 275,000 gain in March).
The second revision to the Commerce Department’s quarterly GDP report rarely generates much excitement, as the changes to headline growth and inflation estimates are typically small. However, tomorrow’s report may be of more interest than usual. The reason is that it will contain the Commerce Department’s first estimate of the “income side” measure of gross domestic product in the fourth quarter, which according to recent research by the Fed staff may be a more reliable indicator of economic activity than the conventional “expenditure side” measure.
First, some background. In principle, there are three different ways to estimate gross domestic product, i.e. the value of all goods and services produced in a given period:
1. The expenditure side measure, defined as the value of all domestic expenditures on final product (e.g. personal consumption) plus the change in inventories plus the change in the trade balance. Following the recent study by Fed staff economist Jeremy Nalewaik, we call this measure GDP (E). (See Jeremy Nalewaik, “Income and Product Side Estimates of US Output Growth,” Brookings Papers on Economic Activity, available at http://www.brookings.edu/economics/bpea.aspx.) GDP (E) is the Commerce Department’s “featured” estimate of US GDP.
2. The income side, defined as the sum of all incomes received in the economy, which we call GDP (I). Conceptually, GDP (I) must equal GDP (E) because one person’s income is always another person’s expenditure. However, in practice there are significant differences between the two, as both are subject to potential measurement errors. The Commerce Department publishes an estimate of GDP (I) in nominal terms in the first revision to the Q1, Q2, and Q3 GDP report, and in the second revision to the Q4 report. We can convert this into an estimate of real GDP (I) using the implicit GDP (E) deflator.
3. The production side, defined as the sum of all value added produced in the economy, which we might call GDP (P). Again, true GDP (P) must equal true GDP (E) and GDP (I). We include this for completeness only; there is no independent GDP (P) figure in the United States, although it is actually the primary measure in a number of other countries.
The reason why we care about both GDP (E) and GDP (I) is that both are “noisy signals” of the unobservable true growth rate of GDP. If so, statistical inference suggests that we should put some weight on both measures in estimating true growth. Indeed, the study by Nalewaik referenced above argues—quite persuasively in our view—that GDP (I) has been a better measure of true activity than GDP (E) over the past few decades. This suggests that one might want to put more weight on GDP (I) than on GDP (E). But even if one disagrees with Nalewaik’s findings, it makes sense to at least put some weight on both.
The argument for putting weight on GDP (I) seems particularly strong at the moment. The reason is that it has been consistently weaker than GDP (E) over the past few years and is therefore better able to explain why employment fell so sharply during the recession and has continued to decline even after the trough in the GDP (E) data in the second quarter of 2009. In other words, if we use GDP (I) to measure output, the departure of the relationship between the unemployment rate and output from the historical “Okun’s law” relationship is less serious than if we use GDP (E). (Our own view has been that the departure is not all that large even if we use the GDP (E) data, but the use of GDP (I) data further reduces the gap.)
So what can we expect from the fourth-quarter GDP (I) number? The continued weakness in personal income—which is published more quickly than the other components of GDP (I)—suggests that GDP (I) growth is likely to come in below the 5.9% GDP (E) number. Indeed, the Federal Reserve’s flow of funds report contains a rough estimate of the “statistical discrepancy” that can be used to generate a preliminary estimate of GDP (I). This shows real GDP (I) growing just 2.2% (annualized) in the fourth quarter, far below the 5.9% number currently on record for GDP (E). The Fed emphasizes that the flow of funds figure is only a rough estimate, and we would frankly be surprised if Friday’s number turned out to be quite this weak. Nevertheless, we do expect GDP (I) to look weaker than GDP (E).
The main implication of a weaker number concerns the labor market. The strong rebound in employment growth predicted by many economists is at least partly based on the acceleration in the GDP (E) data late last year. If this acceleration overstates the economic reality, then the case for strong employment growth would weaken as well. Our own view remains that the March jobs report will show a headline gain of around 275,000 jobs and the next few months will benefit from Census hiring, but employment growth will be insufficient to push down the unemployment rate on a sustainable basis in 2010.
Jan Hatzius
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worthless citi stock? Whatever goldyboy, my options have quadrupled these last 3 weeks!
I am shocked. I shouldn't be... But I am.
Clearly, with that comment in regard to both Gold and Citi stock, the savvy investor is evident.
Booyah, Sudden Debt. Booyah.
GDP shmee-dee-pee. You can tell quite a bit about the economic environment by simply opening your eyes and looking around. The business services sector fell off a cliff in 2008, then started to come back middle of last year with all the stimulus albeit at much worse margins. I see it tailing off quite a bit (double dip?), and it is looking like 2008 all over again. People already are climbing over each other chasing scarce spending dollars. Prices fall, earnings plummet, tick tick boom.
Exactly. Fuck the GDP. We don't give a shit about it and it's FAKE anyways.
Hard to see a way out for America now, the Asian dominance (ex Japan) is to the fore.
Do you mean Japan is an example of Asian dominance, or Asian dominance not including Japan?
What up with GS? They were wrong about going long on the euro, now they may be wrong about going short on the euro. And now they're wrong on the GDP revision.
What happened, their "crystal ball" seems to be given them some trouble these past couple of weeks. Have they lost their untouchable status? Have their sources in the government dried up?
apparently now GS is showing how pathetically inept they are at gauging actual market activity. despite being the only independent marketeer left, it will be interesting to see their performance in the next few years. i think we're going to witness a lot of smaller faster moving more apt entities replace them, sure they'll be there for the big guys/govt's but won't make the same ror small and mid level market makers will.
I'm not really sure WHY IN THE HELL we should listen to CRIMINALS and Financial terrorists like Goldman on the economy, on ANYTHING.
Boycott Wall Street. Starve the Beast. Pull ALL your "investments" from Wall Street. NOW. Only then it will die.
Amen.
I always love these headlines. Authors on ZH constantly bash GS telling us they're the Devil, but when the people who work at GS come up with something that jives with the overall theme of this site, then we should follow what they say.
U don't like information, why are you here?
Oh, I love information. And in fact, the content I find on this site is very informative and often pertinent to my interests. The only thing I don't like is the apparent contradictory nature of this site from time to time. A bunch of the posts deal with Goldman-related bashing, some of it definitely justified. But if you're going to spend time calling every thing GS does a work of evil, then I don't see why you shouldn't remain consistent in that view instead of posting what they say when it supports your message.
I'm pretty sure you just started reading this blog. FUCK GS and the idiots/criminals/minions who work there
GG,
You may be correct about the poster. While "abhinavkapur" has been registered 38 weeks, s/he posted one comment 31 weeks ago, one comment 28 weeks ago and one comment today. That's the sum total of comments. That doesn't say s/he has not been reading ZH but neither does it say s/he has been reading ZH.
I've been seeing a lot of this lately. Avatar and IDs I've either never seen or have not seen in a long time suddenly posting comments. While some are recently registered, a lot have been registered for a long time but only now are they commenting again. Very interesting. What is going on? Why are so many regulars disappearing while others are popping up out of the weeds all of a sudden?
Google Reader is one of the best innovatins of the information age because it lets me track new posts from many sources in a centralized location. Unfortunately, it's not very conducive to posting comments. When there's a topic on which I feel I need to comment, then I post.
For a while it seemed like the good technical content on the site went away and a bunch of crackpots started showing up to post comments. It was right after the height of the complete focus on GS bashing. It's been good again lately with more original content and more numbers.
That's my story at least, but I still don't bother commenting much anymore :).
The Bureau of Making Shit Up will massage the numbers to show whatever TPTB want them to show on the week they're released.
We left any concept of reality on the platform about 15-stations ago.
"We left any concept of reality on the platform about 15-stations ago."
I agree. While administrations have always massaged the economic numbers, it was Reagan during the 80's who first started to blatantly manipulate the numbers through "improvements in measurement techniques" in an effort to "prove" inflation was under control. Clinton was another President who grossly interfered with the numbers, again to help prove the budget was balanced. And (of course) Bush pushed the art of economic obscurity to new obscene heights.
CD,
So (borrowing from yesterday's puzzle...my answer were 9 and 11 by the way...a prime number series and the difference increases by one series...but I digress) is the next answer to your Reagan, Clinton, Bush series that of Obama has decided to just outright lie, altogether trashing and replacing the art of communicating economic obscurity?
"...is the next answer to your Reagan, Clinton, Bush series that of Obama has decided to just outright lie, altogether trashing and replacing the art of communicating economic obscurity?"
It seems so. The manipulation appears to be on an exponential curve, with the level of willful denial by the average economic "expert" directly correlated to the level of manipulation by "officals". Like a dog chasing it's tail, faster and faster around in a circle. There is a point in every series of "minor" lies and/or manipulation where all relationship to reality is lost. It is at this point where outright lies and blatant falsification is used to perpetuate the curve. And people just follow along, feeling capitve and powerless to stop it. It's the old "in for a penny, in for a pound" idea, where once you're corrupted and there's no turning back, everything and anything must and will be done to keep the insanity rolling. It takes on a life of its own and your own deepening level of denial of this state must keep pace in order to live, work and exist within the system.
Take a close look at the world during the periods leading up to WW1 or WW2. Insanity clearly reigned and even accelerated. Even today in textbooks discussing this period, it is often referred to as a world wide epidemic of insanity. I've studied (Nazi) Germany during the 10-15 years leading up to the actual breakout of hostilities. The level of lies the Germans were willing to tell themselves, the level of manipulation of "truth" was and remains staggering in it's degree of absurbity and overall acceptance, which just bred more of the same. And of course, the level of lies all the surrounding countries were willing to engage is was equally huge. Totalitarianism and appeasement's finest hours.
Could Goldman be right this time?
Could Goldman be right this time?
OOPS!
The Vampire Squid (Goldman Sachs) is now doing anything they can to move markets the way they want to for maximum profit.
Just like strong dollar jabber jawing by Timmy and Heli Ben or that Greece's Imperial leader saying they do not need any loans.
too funny, ZH link is in first comment here
http://www.cnbc.com/id/36049667
look fast, CNBS has been blasting entire blocks of comments lately!
Pure propoganda. Government numbers are all politically motivated, only an idiot believes them.
Think for yourselves people!
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