Goldman Previews Q2: Sees 150K Jobs Per Month Created, And A Slowing Of The Economy

Tyler Durden's picture

In its latest note, Goldman is not providing any actionable "advice" which is naturally to be faded and would have been thus quite profitable, but merely updates its outlook for the second quarter, which is not pretty. The firm now expects a slowing down in the overall economy to a 2% GDP rate, and an "additional loss of momentum during the next few months", which is to be expected as every bank wants to keep the perception that NEW QE is just around the corner, as economic stagnation can rapidly become a contraction. Most importantly, the firm expects just 150,000 payrolls to be created every month, which net of the 90,000 monthly labor force increase (yes, forget what the BLS tells you - every month courtesy of demographics the American labor force grows by an average of 90k people) means that only 60k jobs will be added to offset the structural job collapse since December 2007. It also means that the pre-election rhetoric will change significantly as the economic strength from the start of the year disappears, and with it any hope of an economic upswing, providing additional ammo for exciting GOP pre-election theater.

Anyway, here is the full Goldman Q2 roadmap. Which means whatever happens, the final outcome will not be what is presented below.

And the narrative:

After months of stronger-than-expected data, the US economy has started to lose momentum. Following the disappointing March employment report, our Current Activity Indicator (CAI) slowed from an average growth rate of 3.2% in January and February to 2.5% in March.


Looking ahead, our forecast of real GDP growth--which remains at just 2% for Q2--looks for some additional loss of momentum during the next few months. This view is based on a number of factors (see Jan Hatzius, "Sticking with Sluggish," US Daily, March 19, 2012). First, the GDP tracking data (currently at 2.3% for Q1) are softer than the CAI (averaging 2.9% for Q1), and they deserve some weight too. Second, warm weather has pulled forward activity in the labor market and we expect payback over the next couple of months. Beyond the labor market, a mild winter probably helped retail and housing activity outperform slightly. (For details see Andrew Tilton, " Bulk of "Weather Payback" in Payrolls Still to Come," US Daily, April 10, 2012.) Third, the (brief) inventory cycle has helped, boosting 2011Q4 real GDP growth by 1.8 percentage points. Although inventories may again make a small positive contribution to growth in the first quarter, a further positive impact in coming quarters is not likely. Finally, we expect the run-up in gas prices to cut into real income. Retail gasoline prices have risen by more than 10% in 2012 so far, and our models suggest that this increase should act as a drag on growth over the next months.


In the remainder of this comment we provide a road map for some key macro indicators that would be consistent with our 2% growth view for the current quarter. In particular, we envision the following landscape in Q2 (see table below for details):


1. Sluggish consumer spending. We expect real consumer spending to increase only 2% at an annual rate in Q2, which implies average gains of 0.1-0.2% per month. We do not, however, anticipate a pickup in the rate of vehicle sales from the March level of 14.3 million (annualized). In turn, the implication for (nominal) non-auto retail sales is for increases averaging about 0.4% per month. Confidence indexes, which rebounded in Q1, are apt to remain around their latest readings (or a bit below).


2. Gradual recovery in housing. Recent housing data have been broadly consistent with our view that housing activity has bottomed, but that excess supply and tight credit will only allow for a gradual recovery in homebuilding. Although warm weather might have helped housing activity outperform slightly in recent months, this effect is hard to discern in the data and likely to be smaller than the typical monthly moves in these indicators. We thus expect some improvement in home sales during the next few months, albeit to rates that remain extremely low by longer-term historical standards–about 325,000 to 350,000 for the annual rate of new home sales and about 4.75 million for sales of existing units. Starts should exhibit a similar pattern, rising to around 750,000 during Q2.


3. Continued expansion of industrial activity. Manufacturing activity has been mixed in Q1 with strong gains in manufacturing output on the one hand, weak durable goods orders on the other hand, and an ISM consistent with moderate expansion of industrial activity. Given these mixed signals, we expect continued expansion of industrial activity going forward. Specifically, we look for industrial output to show gains of around 0.3% on average per month, core capital goods orders to rise by an average of 0.4% per month, and for the ISM index to remain at around 53 (or a bit less) in Q2.


4. Weak employment growth. We expect payroll gains to average 150,000 per month in the current quarter and the jobless rate to drift sideways at its current 8.2% rate. As a result of changes in labor market flows over the business cycle, it can be challenging to translate rates of payroll growth into levels of initial unemployment claims. Our analysis of the "breakeven" level of jobless claims suggests that our employment growth projections would likely coincide with an increase in initial claims from current levels--perhaps to 375,000 or a bit more. (For details see Zach Pandl, "Breakeven Jobless Claims", US Daily, December 20, 2011.)


5. A slight slowing in core inflation. The last year has seen a notable acceleration in core inflation. We view this as the result of a combination of structural forces (e.g. rising rents due to tight mortgage credit conditions and limited availability of apartments) and temporary factors (e.g. the impact of the March 2011 Japan earthquake on vehicle supply and prices). Given the latter, we expect some relief in coming months. (For a recent review of our inflation forecasts see Andrew Tilton, "A Bottom-Up Look at Core Inflation," US Daily, March 20, 2012.) Specifically, we expect core consumer prices to rise by an average of around 0.15% during the next few months, pushing down the year-over-year core CPI inflation rate to 2% at the end of Q2, and further to 1.6% at the end of 2012.

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bugs_'s picture

this is great news!

UP Forester's picture

Yeah.  Less jobs, less unemployment, but more house sales, car sales, less inflation.


Bay Area Guy's picture

Oh boy.  Since Goldman's always wrong (intentionally) this means the economy is really going to hum!

Then again, it might also mean that another part of Goldman will say that the economy is going to add a bazillion jobs next quarter, so they can play on both sides.

HelluvaEngineer's picture

My guess is that Goldman sold to the hedge funds and is now net short.  Now they need people to panic.

The Alarmist's picture

Would be nice to hear how many jobs they expect to be destroyed in that time.

cossack55's picture

Please define "exciting".

The Alarmist's picture

I can tell you already that 8.2% unemployment is wrong. It will be 7.8% by November 6th.

mayhem_korner's picture




...and 10.8% on November 7th after an "oversight" is uncovered.

The Alarmist's picture

Depends: It will be 20.6% if Romney is elected and actually takes office in January. Lotta wild-cards there.

Yen Cross's picture

Long " Ink Jet " cartridges! 

                                          Stolper needs to print his next "shitload" of  £-¥ !  The Euro is dead!

dognamedabu's picture

Not like you guys here haven't enough to do but it would be great to have your preview on the numbers along side Goldman et al. in the same format. Of course once you prove time and time again like you already have to have a firmer grasp on the economy than all combined you too can own your very own muppet collection. 

Muppet Pimp's picture

You rang?

I keep my muppet hand strong...

mayhem_korner's picture



Long muppets, muppets.

The Swedish Chef's picture

So we can agree that " every bank wants to keep the perception that NEW QE" and that it is a managed perception? There will be no substantial asset purchases by the FED. 

Zero Govt's picture

Goldman is the reason the economy is slowing, they worked that one out yet?

Greshams Law, rotten money drives out good ..or selling garbage rated as AAA is not "added value" but just plain financial fraud

Beard of Zeus's picture

90,000 monthly labor force increase

Gee, I wonder how much of that increase is due to our genius immigration laws, that continue to allow third world peasants to settle here?

mayhem_korner's picture

Manufacturing activity has been mixed in Q1 with strong gains in manufacturing output on the one hand, weak durable goods orders on the other hand,


Translates to "channel stuffing" in ZH parlance.

yochananmichael's picture

i thought that the monthly population growth of the labor force was 125-150k. where did the 90k come from?

Whatta's picture

why is GS's opinion relevant any longer? your articles continue to show them as always wrong on their I supposed to take the opposite side of any GS call?

mendigo's picture

I suspect that they are not so much wrong as that they are lying - as in propaganda. Seems of limited use. More interesting is doesn't Goldman get tired of being incorrect. But then look at Pimco they're all over the place.

cranky-old-geezer's picture



which is to be expected as every bank wants to keep the perception that NEW QE is just around the corner

You mean hope more QE is just around the corner.

Much of the financial paper held by Wall Street banks is losing value, turning their balance sheets redder and redder.

Of course they'd love another chance to trade that declining paper for fresh currency before it loses more value.

QE isn't about helping the economy at all.  It's about helping Wall Street banks avoid losses from  irresponsible trading ...which they're not supposed to be doing in the first place.

non_anon's picture

might be, but I'm doubtful of what comes out of that area of the country.

Question: What kind of jobs are these being created?