Humiliated On Its Q1 GDP Prediction, Goldman Doubles Down, Boosts Q2 Forecast To 3.9%

Tyler Durden's picture

Goldman, it would appear, are desperate to not be forced to admit they are wrong once again.

 On the heels of their dramatic and humiliating swing from expectations of a +3.0% Q1 GDP growth rate at the start of the year to a current -0.6% expectation, the hockey-stick-believers are out with their latest piece of guesswork explaining how growth will explode to 3.9% in Q2 (a full percentage point higher than their previous estimate).The platform for this v-shaped recovery - "consumer spending will probably grow strongly, while the housing market should gradually improve." So 'probably' and 'should' it is then. 

Via Goldman Sachs' Kris Dawsey,

  • Economic activity retreated in Q1, as adverse weather, a large inventory correction, and a likely temporary drag from net exports pulled down growth. GDP growth in the quarter now looks to have been around -0.6%, even worse than the Commerce Department initially reported (+0.1%). However, we anticipate a solid bounce-back in activity in Q2. We are pushing our preliminary tracking estimate up to 3.9%.
  • In today's Daily, we provide a detailed roadmap of our expectations for various economic indicators during the quarter. At a high level, consumer spending will probably grow strongly, while the housing market should gradually improve. Industrial activity and the labor market should continue to strengthen, with inflation remaining subdued.
  • We continue to forecast 3.5% GDP growth in H2. Under our current forecasts, real GDP would increase 2.6% on a Q4/Q4 basis in 2014, below the 2.8 - 3.0% central tendency included in the Summary of Economic Projections from the March FOMC meeting.

Last week, Q1 GDP growth was reported at a disappointing +0.1%. Based on data arriving since the initial estimate—including March factory orders, construction spending, and the trade balance—we now estimate Q1 growth at -0.6%. The good news is that Q1 was distorted by a number of one-off factors, including the negative weather shock, a large drag from net exports, and a sizable inventory correction, which should not be repeated in Q2. As we noted in our recent US Views, data in hand for March and April are consistent with very positive momentum heading into Q2, and we anticipate a strong snap-back in growth.

Although subject to quite a bit of uncertainty given the lack of hard data in hand for the quarter, we are moving up our preliminary Q2 tracking estimate by nearly a full percentage point to 3.9%. Data subsequent to the Q1 GDP report have indicated a larger inventory drag in Q1 (and hence less correction needed in Q2) and a better trajectory of net exports into the current quarter than we had assumed (despite the larger drag in Q1). In addition, we moved up our assumption for real consumer spending growth.

Specifically, we envision the following landscape in Q2 (see table for details):

Consumer spending will probably grow strongly. Q1 consumer spending rose at a solid pace, but on fairly low quality composition. Higher utilities spending due to colder weather and Affordable Care Act-related healthcare spending accounted for the majority of growth. However, the trajectory of spending heading into Q2 was positive, as March core retail sales rose a strong 0.8% and we forecast a solid 0.5% gain in April based on data currently in hand. Similarly, April auto sales at 16.0mn units SAAR were above their Q1 average. While utilities spending will be a drag due to weather normalization, healthcare spending according to the Commerce Department's estimates should continue to outperform, owing to higher Affordable Care Act enrollments. More generally, we see a strong fundamental case for faster growth in consumer spending.


Housing market should gradually improve. Residential investment has been a drag on GDP growth for two consecutive quarters. Our baseline expectation remains for housing activity to emerge from its deep freeze in the coming months, as the weather drag abates and we pass the point of maximum impact from the jump in mortgage rates last year. We have already seen some signs of life in housing starts and pending home sales, although new and existing home sales continued to slide through March.


Industrial activity moving higher. The solid 54.9 print on the April ISM manufacturing index was a good start to the quarter, and we would not be surprised to see a modest continued increase from here. Various leading indicators of capital spending continue to point up, despite disappointing figures in Q1. As such, we anticipate solid growth in nondefense capital goods orders and shipments. Headline industrial production will probably grow more slowly than in Q1 due to weather normalization, as out-sized winter gains in utilities output reverse. (We are likely to see this effect in next week's April industrial production report.) However, the underlying trend on manufacturing industrial production should be better.


Labor market steadily strengthening. The April employment report was a very strong start to the quarter, showing a 288k gain in payroll jobs. Assuming trend-like gains of 200k in May and June would result in average job gains of about 230k/mo, well above the rate needed to bring down the unemployment rate at constant participation. The unemployment rate dropped sharply to 6.3% in April, which seems unlikely to be fully sustained for the rest of the quarter. Past sharp declines in the participation rate—such as that seen in April—have tended to at least partly reverse the next month. We expect initial and continuing jobless claims to continue to grind lower, reflecting a normalization of the layoff & discharge rate and the short-term unemployment rate. However, these indicators provide only a partial view on the degree of improvement in the labor market, as the hiring rate remains depressed and long-term unemployment is unusually elevated.


Inflation to remain subdued. Headline consumer prices will be met with several cross-currents in Q2. On the one hand, retail gasoline prices rose on a seasonally-adjusted basis in April and food prices likely continued to rise faster than the overall rate of inflation. On the other hand, prices for household utilities and heating fuels will probably reverse their large jump in Q1. Although headline CPI looks likely to rise 0.3% in April, we think that for the quarter as a whole headline prices may rise at a similar rate to core prices. We expect core CPI and the core PCE price index to continue to rise at an only-modest rate, in line with Q1 on a sequential basis. The core PCE price index will probably move up from its current year-on-year rate of about 1.2% to 1.3-1.4%, reflecting base effects from the sequester falling out of the calculation.

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LawsofPhysics's picture

Double secret probation bitchez.  After looting the treasury, these fucks will loot their clients...

same as it ever was...

GetZeeGold's picture



Ummmm.....did Obamacare get outlawed overnight?


Double secret probation indeed!

Tabarnaque's picture

I'd like to know what they clowns are smoking!

GetZeeGold's picture



It's like watching a Southerner trying to drive on ice....they're spinning the wheels...but they're not getting anywhere.

spine001's picture

Don't underestimate the regression to the mean, it is a

Beam Me Up Scotty's picture

Funny how they can't get the forecast for GDP growth anywhere near correct, yet they NEVER have a losing day in the market.

Headbanger's picture

"Economic activity retreated in Q1, as adverse weather"

I told ya here earlier they're gonna blame the negative Q1 GDP on weather and here's their "proof":

TeamDepends's picture

Frankly, if you are still a client of Sacs o' Gold or Morgan "you'll never see $1300 gold again" Stanley, you deserve the butt-mugging.

BandGap's picture

And I call bullshit. For Gold-mansacks to be humilated would require them to have some level of self respect. So, bullshit.

Snidley Whipsnae's picture

"consumer spending will probably grow strongly, while the housing market should gradually improve." 

Consumer spending is going to grow strongly while wages are going nowhere?

Housing mkt is going to gradually improve while marriages and household formation in US are at all time lows? Perhaps the Asians are going to buy the houses?

It occurs to me that China has plenty of unoccupied homes already.

But the Chinese, like everyone else, love a bargain...

insanelysane's picture

1.9% would have been a crazy estimate, 2.9% would have been a double-dog crazy estimate, but Goldman, ignoring all protocol jumped right to the triple-dog crazy estimate.

eclectic syncretist's picture

The muppets are all lined up.  This is the part where they are being blindfolded. Next, they will be slaughtered after goldman sells them all they can buy.

LawsofPhysics's picture

Yes indeed.  Let's see, how is the consumer doing these days...

Oh fuck...

SDShack's picture

My favorite line:  "Higher utilities spending due to colder weather and Affordable Care Act-related healthcare spending accounted for the majority of GROWTH". 

So higher costs for consumers, means higher growth because this results in increased spending. I guess this means 3.9% "growth" is realistic when you factor in more consumer spending due to 20% higher grocery prices, $4.50/gallon gas, plus already higher utility and 0zer0care costs. Discretionary Retail is going to absolutely implode this year with all this "growth" in basic needs cost... food, energy, utilities, healthcare, housing, etc. BULLISH as in BS! I see lots of defaults on credit card debt this year.

PS. love "higher spending" due to Affordable Care Act... perfect example of oxymoron, or in this case 0bamaMoron.

SheepDog-One's picture

In global central bankstering T-ball, you get as many strikes as you need to finally get a hit, then you beat the umpire to death with your bat.

NoDebt's picture

Blank the first quarter and you have to nail 4% growth rates the rest of the year to net 3% for the full year.  Good luck with that.


Winston Churchill's picture

Love the smell of Unicorns farting in the morning.
Or is it just plain BS ?

101 years and counting's picture

its raining where i am this morning.  that should drag gdp down to 1.2%.  afterall, who can expect/forecast rain in the spring???

insanelysane's picture

Very cloudy with a slight mist here this morning.  Had to turn the lights on to read this morning so in order to afford the extra electricity I will not be purchasing a 3rd refrigerator and a 5th 90 inch flat screen tv.

eclectic syncretist's picture

The forecast calls for weather.  That's bad for the economy, right?

BandGap's picture

Same here, precipitation coming down sideways off the lake. Gonna be a showdown.


Againstthelie's picture

It seems they'e in need to close long positions...

TeamDepends's picture

We believe that consumers, bouyed by the fact that winter is over, will be enticed to spend their very last dime.

d edwards's picture

"I never make predictions, especially about the future." Yogi Berra


Good advice for GS, too.

BadKiTTy's picture

BLah blAh blaH .... buy, buy, buy, bye-bye.......

There is life in the 'ol pump and dump yet.... just...... a..... few..... more......muppets.........

Bangin7GramRocks's picture

The prediction may be wrong, but the robots will move the markets 1% higher when they "read" it. Mission Accomplished.

eclectic syncretist's picture

The knees of this market are looking more wobbly every day now.

Sudden Debt's picture

so spending will be down... and all the rest will pick up...

doesn't there need to be demand before you sell anything?

pods's picture

Yeah this one is going to happen.  Only if they hedonically put their heads up their ass.

Economy is sputtering and not going anywhere.


NEOSERF's picture

I believe the technical term is "rubberband snapback from polar vortex".

ejmoosa's picture

Bad news for Goldman....the first quarter's demand was not delayed , it was non existent.

So forecasting a release of that pent up demand in the second quarter is a major failing.

Dr. Engali's picture

Lol....eventually they will get it right, once we hit zero. Until then look for 1.5% intangible growth.


Edit. I wish I had a silver eagle for every time I read "housing should start to improve" over the last five years. I am fairly certain my retirement would be secure by now if I had.... my retirement... kids college.... a couple moar ARs........

NotApplicable's picture

How long does it take for an empty house to completely compost? That's my housing metric.

Seasmoke's picture

No accountability. Leads to all the Lies, we now live with. I hate Liars. 

Snidley Whipsnae's picture

Forbes says Chinese are buying Detroit...

I wonder if the Chinese have checked out the taxes/retirement fund/bk situation in Detroit?

Smegley Wanxalot's picture

"Consumer spending will explode ..."

Am happy to say that outside of filling the gas tank (about $240 to $300/mo) and paying my electricity and internet (about $100/mo combined) the remainder of both my April and May consumer spending was cut even further, to about $70 per month.  No shit.  Being mostly self-sufficient and fucking over the crony-corporatist assholes is a good thing (I own my land and housing outright, and have no phone except my company cell).

I expect my consumer spending in June might explode from $70 to $75, however, as I need a minor supply, but I may find a way to offset the extra $5 elsewhere because I hate Uncle-fucking-Sam and his Goldman puppet-masters and the ponzi-economy that fucking much.

HelluvaEngineer's picture

Wish I had your power provider.  Fucking GA Power rapes me every month.  Want to run your air conditioner between the hours of 9AM - 9PM? Well they will just double the rate per KwH during that window. 

scubapro's picture


yes, two cars at 25mpg avg'd; easy to get to $500/month in gas.   inelastic demand.   america was built on $40bbl oil.....its been a real drag ever since then and only leveraged finacialization has masked it for shorter and shorter periods of time.  

Cacete de Ouro's picture

Sell side research is always such BS. I continually get a kick out of the language they use to fudge the issue, sit on the fence, be non committal, hedge their bets, not say anything at all really...

Just scanning down through this crap above, here are some examples:

will probably grow strongly
should dramatically improve
likely temporary drag
anticipate a bounce-back
should continue to outperform
we would not be surprised
will probably grow
should be better
have tended to
on the one hand
on the other hand
will probably move up

Phew! that was tiring...What bullshit

Snidley Whipsnae's picture

+1 for effort...

I especially like "anticipate a bounce-back"

I expect a bounce back of the Washington Senators baseball team... I've been waiting quite a while...

Cacete de Ouro's picture

I like "we would not be surprised". I think I'll start using that one myself.

It conveys the air of detached wisdom like an old grandad sitting on the porch before young grandson Timmy falls off the tree swing, and the grandad thinks 'hmm, I saw that coming', but continues on reading his newspaper.

esum's picture

middle class SHRINKING.... someone tell goldman consumers are 70% of ussa economy.... no middle economy and you dont have to be a fucking goldman deep state insider fed sucking ivy league old wealth grad to know it... bad weather 0 growth  good weather 0 growth.... socialist  for pres... zero growth.... WAIT UNTIL OBAMACARE REALLY KICKS IN THEN WE GET NEGATIVE GROWTH.... 

agstacks's picture

I'm sure we count all war realted expenses towards GDP, no?  Maybe we do get "strong growth" next quarter...

Snidley Whipsnae's picture

Yeah, and flipping burgers is 'production'... as is sweeping a factory floor... if you can find a factory floor.

agstacks's picture

The sputtering recovery is all due to the ideaological right who refuses to allow a recovery to happen. \sarc

Obama spoke at a fundraiser for congressional Democrats in La Jolla, California yesterday:

"And part of what contributes to that is the sense that nobody in Washington cares about them; or what people in Washington care about is their own jobs, their own positions, their own perks, squabbling between the two parties.

And so not only have we seen in Congress, in particular, over the last three to four years an utter failure to address the concerns of ordinary middle-class families, but that reinforces, then, people’s sense that there’s no point in us getting involved at all, and increases apathy or a lack of confidence in our government . . .

The truth of the matter is, is that the reason that we have not seen Washington address the core concerns of too many working families around the country is that you have a party that has been captive to an ideology, to a theory of economics, that says those folks, they’re on their own and government doesn’t have an appropriate role to play.

And our goal and our task in this midterm has to be to break that grip, that particular view, that particular wrongheaded vision this country has so that we can get back to the business of investing in the American people and investing in America’s future.

The Democrats have a congenital disease — we get really excited about presidential elections and then during midterms we fall asleep.

And partly it’s the nature of our voters.  We’re disproportionately young, disproportionately minority, disproportionately working-class.  Folks are busy.  They’ve got a lot of stuff going on.  And so we tend to drop off during midterms.  That’s what happened in 2010."

dadcss's picture

These fools do realize the boomers are winding down their high spending lifestyles AND their children are in college debt/cannot find a job.

OR maybe not..........

scubapro's picture


no, they are not.  a few are, only b/c they are already well out of line for spending down their savings.   people will only change behavior when absolutely necessary, which is usually too late.

the boomers willspend all their money and then some trying to beat father time.    the best business to start now is some kind of 'discount health care practice'  staffed by a couple md's who do botox, skin peels, prescribe hgh, viagra, remove sunspots etc.   cash only, outpatient, and give em a dose of mothers little helper and a stack of referral cards.

Space Animatoltipap's picture

Consumer spending will explode because of inflation.