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In Shocking Move, Goldman Slashes America's Long-Run "Potential GDP" From 2.25% To 1.75%
While Ben Bernanke will never agree that global economic growth has ground to a halt as a result of his monetary policies, a phenomenon which in the past year has been dubbed "secular stagnation" by the very serious weathermen (and will certainly never admit the reason for such stagnation), with every passing month one thing becomes clear: there can be no growth and certainly no prosperity for the broader population with a $200 trillion (and rising at over $10 trillion per year) overhang in global debt. And now, even Goldman gets it.
Having recently cut its estimate of US trend productivity growth to 1.5%, in a shocking move earlier today, Goldman admitted US trend growth is far less than previously speculated (or, "secularly stagnating") and moments ago lowered its long-term potential GDP. The bank says: "after adjusting for a drag from government sector productivity and incorporating an updated assessment of trend labor force growth, we now see long-run potential GDP growth at 1¾%, half a percentage point below our prior estimate."
This is a huge deal as Goldman just recalibrated every single economic (i.e., inflation, employment) and financial (i.e., bond rates, leverage) equation by more than 20%, not to mention the amount of implied residual slack in the economy. In short, an absolutely massive amount!
But whatever happened to Jan Hatzius' repeat forecasts that the US would grow at an "above consensus" rate of 3-4% as far as they eye could see? When will he revise these?
In any event, all else equal, Goldman just admitted that the US standard of living will henceforth grow over 20% slower.
It also means that the Penguin express of Wall Street weathermen are about to jump on board, as will the various regional Feds starting with the Bill Dudley-run NY Fed, before aunt Yellen, too, has to admit that not only is the long-term US growth rate lower than previously expected, but that as a result, the slack in the economy is also far, far less and as a result, the Fed most certainly has a green light to hike, even as soon as June.
Full note below:
Lower Measured Productivity = Lower Potential GDP (Dawsey)
- We recently reduced our estimate of US trend productivity growth to 1½%, mainly due to a downgrade in our view of trend total factor productivity (TFP). In today’s Daily, we refresh our view on potential GDP growth in light of our new productivity estimates. After adjusting for a drag from government sector productivity and incorporating an updated assessment of trend labor force growth, we now see long-run potential GDP growth at 1¾%, half a percentage point below our prior estimate.
In our most recent Weekly, we reduced our estimate of US trend productivity growth?traditionally measured as growth in nonfarm business output per hour—from 2% to 1½%. The most important factor behind slower productivity growth over the past decade appears to be a smaller contribution from the IT sector. Indeed, Exhibit 1 shows that trend productivity growth of around 1½% would be similar to that seen during the two decades through the mid-1990s, but would be significantly lower than that during the dot-com productivity boom. Although we have argued that measurement issues may be resulting in an undercount of value added by information technology, and as a result downwardly distorted productivity figures, we do not expect these measurement issues to be addressed any time soon. As such, we expect measured productivity growth to run below its historical average going forward.
Exhibit 1. Back to a Sluggish Rate of Measured Productivity Growth

Looking at the issue with a different lens, we have found the "growth accounting" approach to productivity forecasting to be helpful in past work. In this framework, productivity growth can be broken into: (1) the contribution from growth in capital services, (2) the contribution from changes in labor composition, and (3) growth in total factor productivity (i.e. the residual component). Based on the outlook for capital spending, labor force growth, educational attainment, and other demographic changes, we expect contributions from capital services and labor quality that are very similar to our prior estimates. Over the coming ten years, we expect capital services to contribute about 0.9 percentage point (pp) per year to productivity growth, and labor composition to add another 0.1pp.
However, our prior estimate for growth in total factor productivity (TFP) now looks too high. As the strong productivity period before 2004 fades further into the background and new data for 2013 and tentative estimates for 2014 have become available, our estimate of the TFP trend has fallen back to the ½% trend seen from 1974 to 1995 (Exhibit 2). That said, assessing the trend in TFP is difficult, not least due to heightened volatility in the years around the Great Recession. We think a reasonable confidence band around our TFP estimate is roughly 1 percentage point. Uncertainty aside, combining our point estimates for the contribution from capital services, labor composition, and TFP results in a trend productivity estimate of 1½%.
Exhibit 2. TFP Trend Looks Lower

Productivity measures that are typically quoted—including the official productivity release from the Labor Department—refer to growth in nonfarm business output per hour worked. In order to convert the estimate to "total economy" productivity, an adjustment must be made for the fact that (by virtue of how the national accounts are constructed) productivity in the government sector is a mechanical drag. Historically, subtracting about four-tenths of a percentage point has been appropriate (very roughly: 20% government share of GDP multiplied by roughly -2% "missing" productivity growth vs. the rest of the economy). However, as we anticipate a slower rate of productivity growth in the private sector vs. the historical average in the future, we think that a subtraction of roughly three-tenths is appropriate going forward.
The last piece needed to arrive at an updated estimate of potential GDP growth is a projection for growth in potential hours worked. Because weekly hours per employee will likely be stable over the long term, we focus on growth in the potential labor force. Using updated Census projections for population growth by age category released in December 2014, combined with an assumption of stable participation by age group in the long term, we think that potential labor force growth will average about 0.5 percentage point over the next ten years, similar to CBO's assessment. Exhibit 3 shows that potential labor force is likely to be below growth in the 16+ population, as the average age of the US population is increasing and older individuals are less likely to participate in the labor force.
Exhibit 3. Potential Labor Force Growth Will Likely Fall Short of Population Growth

Adding up the pieces, growth in nonfarm business output per hour of 1½%, a "total economy" adjustment of about -0.3pp, and potential labor force growth of about 0.5pp sum to a potential GDP growth estimate of 1¾%, half a point below our prior estimate. Of course, the same "new economy" measurement issues that we identified as potentially affecting productivity growth feed through directly to measured GDP growth, and so we would be cautious of confident pronouncements that the true standard of living in the United States is likely to grow more slowly than in the past.
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Goldman...doing god's work. Their god - lucifer.
Who can believe anything the Squid says?
Well I for one agree with one of their primary rationales of "drag from government sector productivity"
Yeah, right. If the economy can't grow as much, best hike rates and really get this shit straightened out
Oh, Mother of God this is fucked up....
Now, where's my progressive bud I been telling about public sector drags and waste?
Goldman's forgetting all of the 54 years and older job growth. Older individuals will only be "less likely to participate in the labor force" if they're dead, on the government dole, living under a bridge...
Who me? Shocked? Not so much, I'm from Hedge Island land of the mutha fucking misfits.
We be slashed...
What government drag? I saw a postal worker (in uniform) getting in to her BMW after work this evening. And I know the City of Oakland, CA is adding staff on the Rent Control Board.
Wait till Oakland and Richmond go Baltimore.
Oakland is a lot like Baltimore already when neither are rioting. When rioting, Oakland's probably worse. Close to a lot of tech companies full of scared rich white people so the cops are gonna use deadly force on the slightest excuse whenever TSHTF there. At least there's a bridge between it and the Apple campus.
Party's over, bitchez! And Jade Helm's the bouncers.
Bullish!
Somebody had to say it....
Great sounding words placed together. Goldman slashes. The pleasing sound is better for some reason when they are reversed.
This probably happened in Europe or UK at some point.
Labor Rates are so low, no one wants to work, go to school instead, become cynical about ever paying off debts. Probably you see people that only care about family since work sucks and doesn't pay and no one ever teaches them anything that will allow them to become business owners or apprentices.
I bet there are dirt poor people living in the UK. They even walk around with dirty hands, face, clothes all raggedy. But they have plenty of Regulations over there.
Dear Leadring will be calling you. How dare anyone question his recovery
Lloyd .... stay away from the balustrade when you're throwing the red hot pennies to the children.
the financial sector isn't productive at all.
Will household debt also grow at a slower rate, boys and girls?
Take a drive out to the Hamptons bitchez, jump into the Atlantic & drown.
So if we post an article with a few numbers in it, then it is supposed to be Analysis?
- Well is it Systemic or is it due to lazy kids not wanting to work?
GS is keeping the Problems, Reasons to themselves since they helped create the problem?
- Low Velocity
- 12 years in a Credit Bubble, 17 years of stupid Financing
- economic dependence on Housing, MIC, Government Projects, Fake Health Industry
- Households leaking Wealth on Health Care, Education, Big Mortgages, Interest Payments
- US Economy Leaking Money to Foreign Trade, Federal Spending Overseas, Foreign Ownership/Investments in the USA, Foreign Ownership of US Debt (Federal Debt), Decapitalization of US Industries, Wealth moving Off Shore
Great Analysis. I guess Bankers Keep all the Info within their own Intelligence Network.
“Potential GDP”?
Two of the components (“investment, plant and software” and “government spending”) that comprise the GDP actually measure the consumption of capital.
For example, in the case of “investment”, whether for business or residential, the money borrowed for such undertakings has been withdrawn from the market place, and is no longer available for use by anyone else.
The resources (labor and raw materials) consumed by the “investment” have been withdrawn from the market place, and are no longer available for use by anyone else.
In each case, the money or resources are treated as an expenditure and booked as an asset (receivable or structure et cetera) with the understanding that it will be collected or expensed over a period of 5-30 years. If the investor is successful, he will realize profits and pay interest in each of those following years: It is then that the investment will add production to the overall economy.
If the investor fails, thru accident or ineptitude, all money and resources involved will be lost forever. The booking of the asset will then have to be reversed as a very big expense, or loss of capital.
These two components of the GDP comprise about 35% of its total.
If we were to make these corrections to the GDP, gee, what a slaughter.
Hah ha ha ha
Nobody has a clue what the real numbers are. They're all complied by a bunch of lazy assed dimwit bureaucrats in some stuffy back room in the dark with one coffee and pee break a day.
Well, true, these guys were just laid off when the new computer model was started a couple years ago.
The model works about as well as the electric water level sensor in Lakes Mead and Powell.
Use a fucking stick.
For some reason I seem to becoming more and more jaded every day.
For some reason I seem to becoming more and more jaded every day.
.gov has a hat for you.
Fuck it. Time for a PB&J With a banana.
so real recession is about -5%
The Tribe has fucked us -for at least a decade and likely much more even if we got wise soon and rounded all these criminals up and hung them. Tribesters -who make up maybe half of the 1% who are raping this country -plundered trillions from most of America with market bubbles and then induced and inevitable crashes - and then with their QE based tepid recovery -captured 80% of the gains while maybe 20% of the recovered losses went to the 95% who were crushed in 2009 and before that in 2000. And guess who will suffer when the next crash comes? And in enriching themselves greatly -have saddled the youth of America with ruinous debt -personal, corporate and public -that can never be repaid. These motherfuckers need justice -not in the next life -but now -here. Bring on the gallows.
Yeah it's fucking sickening already.
What I'd like to see slashed is Blankfein's throat.
Great Satan. Enough said. Sell TBTJ mark to unicorn equity to buy physical gold. Each and every day. Without leverage. Until the privately controlled fractional reserve banking phantom "money" creation control fraud collapses.
And it's Friday tomorrow! What a coincidence?
$
Are they factoring in double and perhaps triple seasonally adjusting? /s
This is an excuse for the Fed to resume QE.
"Shocking move"?
Hence the long bond yield should be 1.5%.
Welcome to New Japan.
Lacy Hunt has pointed out that growth slows dramatically when the total debt of a nation (public and private debt combined) exceeds 280% of GDP. We crossed that threshold in 2000 (we’re now up around 340%). Since that year, real GDP growth has averaged about 1.8% annually. In the 100 years before that, real GDP growth averaged 3.6% annually. And the relationship is nonlinear, meaning that the growth will slow at an accelerating rate as the debt continues to grow. You can’t solve a debt problem with more debt!
For those who are shocked by this I suggest paying closer attention to the everyday facts that are right in front of you. Example national debt, percentage of people relying on some sort of govt support, underemployment trends, prices on the grocery store shelf, the impact of out of control govt regulation and the list goes on. Every person who voted for a person in office who supports current policy is part of these disasterous results and they are disasterous. If 1.75% is published imagine what the true statistic is?
Imagine the stock market lift off if there's an upward revision of the number to 1.76%!
http://www.mybudget360.com/wp-content/uploads/2012/04/total-credit-marke...
https://www.creditwritedowns.com/wp-content/uploads/2010/12/Total-Credit...
Credit (debt) must expand, continuously, forever, or everything breaks. Shout it from the rooftops.
GDP is credit (debt) expansion. Check out the historical GDP growth rates of, gee, damn near every economy in the world that has ever industrialized, during their takeoff phase. Initial credit expansion is quite literally effortless, GDP is conjured from thin air.
Credit expansion quickly exhausts itself, manifold and sundry gimmicks and tricks are then necessary. No credit expansion, no GDP growth.
Trying to analyze GDP is like technical analysis is like reading oracle bones or tea leaves.
What you need to know is that it is shamelessly manipulated higher to hide the failure and collapse of credit expansion which is the death of the (world) economy.
"In any event, all else equal, Goldman just admitted that the US standard of living will henceforth grow over 20% slower"
The standard of living isn't growing, except for members of congress, who can inside trade the market and those who can afford that $500 million dollar house being built in Bel Air, or a $179 million Picasso.
Double or triple seasonally adjusted..?
I will still take the under...
Maybe GS is long bonds like so many Wall Street investors and wants to influence the Fed to not raise short term interest! But guess what, she will...
Can't we just adjust for rain and hot weather? That ought to be good for a few percentage points.
Capitulate, bitchez!
been waiting a few months for this particular capitulation to take place... feels nice to get that off my chest.
So if secular stagnation is here, and probably has been here since 2003 papered over by serial bubble blowing, what is the use of printing money? Isnt it more destabilizing?