Goldman's Extended GDP Analysis

Tyler Durden's picture

Ah yes, inventory, inventory, inventory... The little deux ex machina that almost could... Until Hatzius sprays some serious water in your face. And take the other side on any Hatzius bet at your own peril. Seriously. You don't even want to know what the Stardust line is on Hatzius being wrong on this one. Although if you get the counter trifecta, you could be the proud owner of $90 trillion of in the money interest rate swaps (good luck, sucka).

From Goldman:


We estimate that real GDP grew 2.7% (annualized) in the third quarter.  Our number is below the Bloomberg consensus of 3.2%, probably because our estimate of the pace of inventory liquidation is more aggressive than that of other forecasters.

  • On the brighter side, more inventory liquidation this quarter means a better starting point for subsequent periods.  At least outside the auto sector, most of the inventory boost still lies ahead.  This should boost production in the fourth quarter, where we currently estimate 3% for real GDP growth.
  • Our longer-term views remain unchanged.  Stronger growth now is likely to give way to weaker growth in the course of 2010 as the boost from fiscal stimulus and the inventory cycle wanes while underlying final demand growth picks up only moderately.

 
With all the relevant data now in hand, we shaved our third-quarter GDP estimate to a gain of 2.7% (annualized) this morning, from 3.0% before.  The GDP report is due at 8.30 EST on Thursday.  Our estimates for the major GDP components are provided in the table below.

While a 2.7% quarter would provide more evidence that the recession probably ended this summer, our estimate is below the 3.2% Bloomberg consensus.  It puts us into the bottom 20% of the 79 forecasters in the survey, whose predictions for this release range from 2.0% to 4.8%. 
 
Why are we below the consensus?  It is hard to be certain as Bloomberg only provides consensus figures for GDP and personal consumption, so we cannot compare our estimates against the consensus line item by line item.  But we suspect that we have a lower estimate for the inventory contribution to GDP growth than many others.  Although the monthly inventory data show a slower pace of liquidation in the third quarter than in the second quarter, it is important to note that these figures are reported on a book-value basis.  When commodity prices rise, book-value inventory data will overestimate “real” inventories, which are what ultimately matters for GDP growth.  The Commerce Department adjusts for this via a so-called “inventory valuation adjustment,” which is likely to be negative in this case, but at least some forecasters may fail to adjust properly for this factor when tallying up their numbers.
 
On the brighter side, more inventory liquidation this quarter means a better starting point for real GDP growth in subsequent periods.  Indeed, at present the risks to our respective Q4 and Q1 estimates of 3% and 2% are slightly tilted to the upside.  This is because fiscal policy is still providing significant help to growth and most of the inventory boost still lies ahead, at least outside the auto sector.  We will watch the upcoming data releases closely to determine whether adjustments to our near-term estimates are warranted.
 
Beyond the near-term “bean count,” our broader call for a sluggish recovery with falling inflation and continued low interest rates remains unchanged.  It is based on two considerations.  First, the overall economy is probably weaker at present than suggested by many standard indicators and the strength in the equity market because smaller companies—which are underrepresented in standard indicators and are not publicly traded—are underperforming larger ones.  Hence, there is a significant chance that growth in the second half of 2009 will be revised down from whatever preliminary estimates the government statisticians publish over the next few months, once more complete source data become available.
 
Second, the economy will lose the benefit of the fiscal stimulus and the inventory cycle over the next year.  We estimate that these factors are worth a total of 4 percentage points in terms of the impact on annualized real GDP growth in the second half of 2009.  If our estimate is correct, growth will slow over the next year unless underlying final demand growth—“organic” growth, if you will—picks up by 4 percentage points or more.  While some improvement in organic growth is likely, we expect it to fall well short of 4 percentage points given the continued headwinds from the weakness in the labor market, consumer deleveraging, excess housing supply, and state and local budget cutbacks.

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molecool's picture

"Second, the economy will lose the benefit of the fiscal stimulus and the inventory cycle over the next year.  We estimate that these factors are worth a total of 4 percentage points in terms of the impact on annualized real GDP growth in the second half of 2009. "

 

Translation: Corporate Welfare will soon come to an end as it will become politically untenable - so in other words, the free ride is over, bitches - head for the hills.

Anonymous's picture

the translation made my day.

seriously though what did people expect when the FRB stopped buying treasuries? Hello risk repricing? rather, risk will now have a price and it'll probably be a direct inverse of the last 6 months.

Pamela Anderson's picture

I bet my breasts that these Goldman Criminals,  downgraded the GDP estimate to more than it was supposed to be because:

1) They know that it will come on higher than 3%, but they can't hit this one like they did with the unemployment number, because they will have more heat on their asses from people questioning how do they have the numbers in advance.

2) The move was perfect, for once they are going to look like dumbs when the GDP comes higher than 3%.... but this was precisely what they want people to think at this point, it helps to remove a little bit of heat from their asses and second, at the end of today's market they position themselves for the upside that we will have after this numbers come tomorrow.

These guys are real criminals. They should be banned from trading. Why are they allowed to trade and give guidance on the stuff that they are trading, if they are one of the biggest market makers out there. I am quite sure that there is a place in Hell for all of them!!!

The "best and the brightest" this sounds so stupid!!!!!! Of course you are going to look good playing Monopoly if you are the bank, you can print as much money as you need and you know the number that is going to come in the dice after the other players roll.

You have to be really smart to win the game playing like that! (And they almost lost the game and everything last year... )

Please, just imagine: Guy Adami, Jim Cramer, Erin Burnett and Trish "Bambi Brain" Regan are ex Goldman Sacks.... 

Lionhead's picture

One more POMO left tomorrow to "cushion" any unpleasantness. Intraday, the bears were all over the bulls like a cheap suit. ;)

bonddude's picture

They have a habit of really being in the ballpark.

One wonders where the OJ Futures are gonna come in ???

"Beeks? Are you there Beeks?...Thank you Beeks...Happy New Year Beeks !"

Cognitive Dissonance's picture

Looks like that 4 hour erection just went flat in 30 minutes. Oh well, it was fun while it lasted, wasn't it?

BT310's picture

Anyone see the last minute action on SYK.  Not that the SEC would do anything.

About an hour before news on a DOJ indictment came out:  http://www.reuters.com/article/marketsNews/idCNN2832038020091028?rpc=44

digalert's picture

Didn't Golden Slacks,the day before, get it right last time? Maybe Goldie already knows the #s?

mattco's picture

Of course they know the number. That is the beauty of Goldman. No risk taken at all. They know everything including where your stops have been placed. lol

Rollerball's picture

"On the brighter side, more inventory liquidation this quarter means a better starting point for subsequent periods."

Hey Squidward, bankruptcies liquidate inventories too!

http://www.youtube.com/watch?v=o_IAEo4x8aw&feature=related

Dadoomsayer's picture

Anyone catch what they said on Fox Business channel about the GDP during the "happy hour"?  Something to the effect that the President (why would he comment on it 12 hours before the release?) said do not become overly excited after the GDP numbers came in (as in good excited or bad excited?).  I'm not exactly sure what that means, and I think Cody had a hard time interpreting it as well.

deadhead's picture

Obama has talked in advance of certain number releases previously.

irrespective of gdp tomorrow, he is trying hard not to set up expecations too much (mainly because he knows we are basically phucked).  he will manage the expectations process closely until after mid terms.

Sardonicus's picture

GDP is bound to be more better than expected. It just GOTS to be.

http://finance.yahoo.com/news/Costco-to-accept-food-stamps-apf-887519571.html?x=0&sec=topStories&pos=7&asset=&ccode=

Next up...IRS will take food stamps as payment for taxes on that clunker cash used to buy new autos and also against the 1099-c's being issued to credit card debt charge off beneficiaries.

Careless Whisper's picture

Beware of the head fake.

desk-jockey's picture

i'm already crapping my shorts, small as they are. but i rest easy in the knowldege that they dint put one over on me this time.

 

/STOPS mofos....and ire.

Anonymous's picture

Looks like you were right CW......

Isn't this fun........

johngaltfla's picture

15% annualized growth in residential investment? Pass the bong, I need a toke.

desk-jockey's picture

puff puff pass...the dutchie....

DaveyJones's picture

"Second, the economy will lose the benefit of the fiscal stimulus"

did I miss something?

"unless underlying final demand growth—“organic” growth, if you will.."

there is nothing "organic" gowing on, this is a Monsanto economy

Anonymous's picture

Did he just say double dip ?

Anonymous's picture

I believe he said double dip next year.

B9K9's picture

The cost of GM/Chrysler bailouts: $100B

The cost of TARP bailouts: $800B

The sound of laughter as Chinese students discover the US achieved pseudo-GDP growth on $20T of commitments: priceless.

Anonymous's picture

My laughter as those chinese students line up hoping for jobs paying $100 a month: Loud

JR's picture

Goldman Sachs controls the New York Federal Reserve Bank and the New York Federal Reserve Bank controls what Bernanke intends to do with interest rates and corporate assistance.

That said, this Goldman report is tantamount to advance notice of what the Federal Reserve would like to do and would like to see in coming months: no interest rate increase--i.e., continued easy money for the privileged bankers to manipulate into billions and refuse to loan to small businesses that they can pick up later at fire sale prices and to confiscate  old ladies’ savings at below inflation interest  while they murder them with high credit card interest and  higher prices on non-discretionary necessities; more lies about “low” inflation to feed the Fed policy scam, and more lies about a gathering recovery to silence the truth.

The problem remains, will U.S. clients such as China and a steadily deepening recession force market conditions on these crooked bankers.

Thus, the financial greed of Goldman not only leads the van, it directs the attack—against “smaller companies,” “the labor market,” the “consumer,” Americans’ “housing,” and  “state and local budget” tax receipts because of the millions of unemployed who haunt the streets of America.  Goldman wants everything, all the while pretending to wring its hands about the little guy.

In Goldman’s own words:

“Beyond the near-term “bean count,” our broader call for a sluggish recovery with falling inflation and continued low interest rates remains unchanged.  It is based on two considerations.  First, the overall economy is probably weaker at present than suggested by many standard indicators and the strength in the equity market because smaller companies—which are underrepresented in standard indicators and are not publicly traded—are underperforming larger ones…

“While some improvement in organic growth is likely, we expect it to fall well short of 4 percentage points given the continued headwinds from the weakness in the labor market, consumer deleveraging, excess housing supply, and state and local budget cutbacks.”

This is Bernanke’s speech.

deadhead's picture

well spoken as usual JR.

Thank you for taking the time to share your thoughts.  I always enjoy your outlook and insights.

steve from virginia's picture

There is so much wishful thinking in this report it's hard to know where to begin. 15% residential investment ... wtf?

JR's remarks are apt. This is the Fed's whistling past the graveyard speech. Bernanke has to raise interest rates sometime, maybe not tomorrow. It gets ugly after that and fast. The market becomes a time machine, taking us all back to September, 2008.

Our 'real' economy is a prisoner of OPEC in the short term and the fifth horseman of depletion in the middle term. Look to very constrained petro imports into the US in 2013 and that's with no money shenanigans.

Check out Jeffrey Brown on Jim Puplava's October Financial Sense Newshour (about halfway in):

http://www.financialsense.com/fsn/main.html

Robert McHugh has an intereting technical take on equities and it's pretty damned scary.

Halloween, dude.

 

DaveyJones's picture

"Goldman Sachs controls the New York Federal Reserve Bank and the New York Federal Reserve Bank controls what Bernanke intends to do with interest rates and corporate assistance."

reminds me of mailing a letter in fourth grade when would I write my street address and finish with California, USA, The Northern Hemisphere, The World, The Solar System, The Milky Way, The Universe

analogy works I think since Goldman is light years away from the rest of us (software included) .

Cplus's picture

Since the US currency declined at a simple (uncompounded) annual rate of 28% in Q2 and 19% in Q3, a GDP gain less than double digits signifies an economy continuing to implode. A GDP gain of 5 or 6 % qualifies as little more than a rounding error.

 

There is a healthy probability that the expectation game will produce a big beat, making the retracement just another bear trap, with the equity and commodity markets at the least retesting recent highs.

 

The positive feedback dynamic between devalued currency and rising market prices is powerful and may not go gently into the night.

 

 

Anonymous's picture

KSP is a Jones Act shipper of petroleum products, which is the best gauge of economic activity in my tally book. Only American flagged vessels can ship between domestic ports. KSP is down 38% today, warning of kicking off debt covenants and offering this tidbit as an explanation: ‘absence of any meaningful recovery in petroleum demand is causing further reductions in refinery utilization and thus further reductions in waterborne product movements, including a reduction in the number of new term charters.” Reuters, today.

reading's picture

We estimate that real GDP grew 2.7% (annualized) in the third quarter.  Our number is below the Bloomberg consensus of 3.2%, probably because our friends in the govie already gave us the numbers so we can look like the really smart folks we are.  We are always right...

 

Pamela Anderson's picture

This time, they know is going to be higher than 3%. Is just a head fake. They can't hit this one like they did with the unemployment number. They already took positions for the rally tomorrow after the debacle that they intentionally caused today. This is the Goldman Way!

johngaltfla's picture

Screw this report. Watch for the revisions. THAT should be a beaut. I doubt we'll see -0.7% once the real data is applied. More like -1.8% or worse.

deadhead's picture

Mr. Blankfein:

When are you going to pay off the $22billion in FDIC TLGP funds and borrow money like a big boy instead of staying on the government mammaries?

You said that you "wished" the borrowings were "zero".

Poof!  Wish granted, take the 20 billion in bonus money and pay off the bonds.

You are a despicable hypocrite.

anynonmous's picture
Feldstein says double-dip recession possible

There's a real risk of a double-dip recession in the U.S., according to one of the biggest name in economics. Martin Feldstein, President Emeritus of the National Bureau of Economic Research, the group that calls recessions, also says the American consumer is in an "awful" state. He speaks with Howard Green in this exclusive interview.

 

http://www.bnn.ca/news/13274.html

heatbarrier's picture

Feldstein speaks his mind. Refreshing.

nopat's picture

I don't mean to be a stickler, but...

What's with the centered columns and non-centered data?  Fix that shit.  All the money in the goddamn universe, Ivy League education, and they can't even format a fucking spreadsheet?

Weak...

heatbarrier's picture

And color yellow is a giveaway.

Anonymous's picture

I'm sensing a short term bear trap tomorrow; the last hurrah before it all heads south.

Cursive's picture

He will be revising his Q409 and Q110 GDP estimates downward.

crzyhun's picture

Watch for an outlier. This is not the issue despite the GS muddled mess GDP #... the outlier =IRAN. Now that will be the event.... 

Anonymous's picture

Doesn't "Jan Hatzius" sound like some epithet a Scandinavian would utter when he is shocked? Either that or what you'd say after someone sneezes?

Rama V's picture

Didn't GS pull this kind of trick recently on unemployment figues?  A day before the announcement of the statistics, GS changes their estimates to exactly what the government published the next day.

Anonymous's picture

How can we have any real and lasting recovery when the much needed correction was never allowed to happen thanks to a continuous and limitless stream of "quantitative easing"? At some point the piper has to be paid, the rubber has to hit the road and the dollar (or yuan) has to be paid back.... yes, no?

Anonymous's picture

Pamela, good point!

Bear's picture

Vegas card counters have to have some losses to make it look real ... The fix is in either way

Bear's picture

This is great ... GS says 2.7, BHO says be calm (after saying buy equities in early Oct) ... GDP comes in at 3.6 ... the market goes straight up and every last short covers, GS supports dips with POMO money and we advance again on nothing but lies ... we'll see it's 5:00am NYTime and something is pressing the futures (ESZ9 at 1044 with gold near highs).

Anonymous's picture

Just in: GDP at 3.5%

Careless Whisper's picture

3.5%  See my previous post.