Goldman Slashes April NFP To 125,000, Concerned By "FOMC’s Apparent Reluctance To Deliver"

Tyler Durden's picture

The good days are over, at least according to Goldman's Jan Hatzius. Now that "Cash For Coolers", aka April in February or the record hot winter, has ended, aka pulling summer demand 3-6 months forward, and payback is coming with a bang, starting with what Goldman believes will be a 125,000 NFP print in April, just barely higher than the disastrous March 120,000 NFP print which launched a thousand NEW QE rumors. But before you pray for a truly horrible number which will surely price in the cremation of the USD once CTRL+P types in the launch codes, be careful: from Hatzius - "Despite the weaker numbers, we have on net become more, not less, worried about the risks to our forecast of another round of monetary easing at the June 19-20 FOMC meeting. It is still our forecast, but it depends on our expectation of a meaningful amount of weakness in the economic indicators over the next 6-8 weeks. In other words, our sense of the Fed’s reaction function to economic growth has become more hawkish than it looked after the January 25 FOMC press conference, when Chairman Bernanke saw a “very strong case” for additional accommodation under the FOMC’s forecasts. This shift is a headwind from the perspective of the risk asset markets....So the case for a successor program to Operation Twist still looks solid to us, and the FOMC’s apparent reluctance to deliver it is a concern."

Reaction function, huh? The only reaction the Fed has is whether the RUT is above or below +/- 700. Translating Hatzius' words in English means that in an election year where gas prices are oh so important, the Fed may be forced to do QE only if the Russell 2000 drops below 625 instead of the usual 700. Yet so habituated is the market that any downtick is an automatic catalyst for more easing, that perhaps it is precisely the Chairman's idea, for once, to disappoint momentum traders to the downside in an attempt to regain some credibility. Naturally, if that meme were to gather steam, the backlash in risk would be violent since the S&P has a cool several hundred points in implied future easing as is (ignoring the 1000 points in the index already purchased with the $14 trillion in historical global easing, as noted previously).

Here is how Goldman views the recent contraction in the economy, and why it thinks things are getting worse:

For much of the last six months, the wind has been at the back of the financial markets. The US economic activity data in Q4/Q1 came in mostly ahead of (depressed) expectations, and global central banks steered an easy course. Financial markets have responded by pushing up the price of risk assets. While the advance has stalled in recent weeks, equity markets remain up more than 10% on the year.


Has the Tide Turned on Growth?


However, we see signs that the environment is getting tougher. On the growth side, the data have clearly slowed both in absolute terms and relative to expectations. As shown in Exhibit 1, our current activity indicator (CAI)—a statistical summary of 25 monthly and weekly indicators of economic activity—has decelerated from 3% in January/February to 2½% in March, and the weaker-than-expected 2.2% growth pace for real GDP in the first quarter after 3.0% in the fourth quarter sends a similar message. Moreover, our US-MAP—a weighted surprise index for all of the US economic indicators—has moved from steady positive to negative surprises over the past few months.


We expect the softer tone of the data to continue over the next few months, for three basic reasons:


1. Weather payback. A substantial payback for the boost from the warm winter is likely, especially in the employment and housing data. This is the main reason why we estimate that the US economy created just 125,000 new jobs in April. This is despite the fact that we expect a bounce back in retail employment following the 37,000 decline seen in March.


Exhibit 2 shows the rationale for expecting a large weather effect by contrasting employment growth in the normally cold half of the country vs. the warm half. The chart plots the percent change in nonfarm payrolls and makes two points. First, all of the acceleration in payrolls during the winter has come in the cold states. Second, there was not much payback in March, as the payroll growth pace in the cold and warm states was in line with the pre-winter pace; this suggests that the payback for the elevated growth rates in prior months has yet to occur. We believe that the partial normalization of the weather—and more importantly, the fact that weather doesn’t matter as much for the level of payrolls after March—will lead to a payback of at least 50,000 in the April report.


2. Inventories. The first-quarter GDP report contained more evidence that the inventory cycle is turning from a growth tailwind to a headwind. Exhibit 3 shows that the level of inventory investment relative to GDP now stands at 0.6%, toward the top end of the range seen in the past decade. This means the level of production is relatively high compared with the level of final sales and may need to be trimmed in coming months. We therefore expect modestly negative inventory contribution to growth in the second quarter.


3. Final demand. Domestic final sales grew only 1.6% in the first quarter. While the news on consumption was a bit better than expected, we recently argued that the generally firmer auto and retail sales figures of the past few months were unlikely to mark the beginning of a sustained acceleration. The reasons are that real income growth remains soft (partly because of higher energy prices), wealth effects are not yet particularly positive, consumer confidence remains modest, and again some of the recent strength in retail sales probably reflects weather effects.


The signals on capital spending have also been downbeat. The first-quarter GDP report showed a surprising 2.1% decline in real nonresidential fixed investment—the first drop since late 2009—and core capital goods orders have been soft in recent months. It is possible that some of this is due to a bigger impact from the reduction in the depreciation bonus from 100% to 50% at the end of 2011, and/or the impact of changes in environmental regulations on some industrial equipment, than we had anticipated; in this case, one would expect the weakness to be relatively short-lived. But we would view at least some of the weakness as a signal that the underlying demand trend remains soft.

And while two months ago Goldman would be all over this expected economic deterioration as the signal for more QE, it appears changes to the Fed's recent language, but more importantly actions over the past few months, have made at least Goldman, into a believer that the Fed's hawkish tone may be more than just bluster... at least until the late summer, after which point what happens to gas prices is irrelevant and when America will have to content with another debt ceiling raise fiasco whereby the true nature of the Fed - that of the ultimate funder of the US budget deficit is once again reprised.

Will Policymakers Respond?


Despite the weaker numbers, we have on net become more, not less, worried about the risks to our forecast of another round of monetary easing at the June 19-20 FOMC meeting. It is still our forecast, but it depends on our expectation of a meaningful amount of weakness in the economic indicators over the next 6-8 weeks. In other words, our sense of the Fed’s reaction function to economic growth has become more hawkish than it looked after the January 25 FOMC press conference, when Chairman Bernanke saw a “very strong case” for additional accommodation under the FOMC’s forecasts. This shift is a headwind from the perspective of the risk asset markets.


Some of the Fed’s reluctance to ease again is a straightforward response to the slightly higher recent inflation data. The disinflation in the core indexes has been more gradual and halting than we had expected, and Exhibit 4 shows that business surveys also report slightly more price pressures than earlier in the year.


But we doubt that new information about the economy is the entire story. The inflation surprise has been modest, the US growth outlook on net has not changed much since January, and the “significant downside risks” from global financial market turbulence (and the US fiscal cliff) still look real, as this week’s FOMC statement acknowledged. So the case for a successor program to Operation Twist still looks solid to us, and the FOMC’s apparent reluctance to deliver it is a concern.

A concern maybe for projecting 2013 discretionary budgets on Wall Street (because if 2012 bonuses are a deja vu of 2011, just like everything else so far, god help the bankers)... hardly much of a problem for the 90% or so of the population that only sees the inflationary drawbacks of QE and none of the benefits.

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VonManstein's picture

oooo they really want their QE

xela2200's picture

How else are they going to get their bonuses?

AldousHuxley's picture

by shorting against their clients long only positions?


just like what they did with toxic asset derivatives?




Sam Clemons's picture

They seem like a hungry vampire absolutely needing to suck blood from the system.  "Need my fiat bucks!!!"

VonManstein's picture

this is like a warning shot. slashing numbers is trying to force bens hand

slaughterer's picture

Hatzius is such a whiner: if there is no QE in June, there will be QE in August/September.  Just in time for the election, and just in time for the GS EOY bonus pool.  

Randall Cabot's picture

Another Goldman downgrade of the Russell 2k coming soon?

bigun's picture

u know the system is fucked up when everything depends on more printed money

SheepleLOVEcheddarbaybiscuits's picture

give us money bitchez, bc if you don't we might actually have to work for a living

Caviar Emptor's picture

Goldman bringin home the bacon to WS cronies.

More QE will employ 3 more Chinese for each 1 more American employed: 

Thirty-five big U.S.-based multinational companies added jobs much faster than other U.S. employers in the past two years, but nearly three-fourths of those jobs were overseas, according to a Wall Street Journal analysis........Nearly 60% of the revenue growth between 2009 and 2011 at the companies in the Journal's analysis came from outside the U.S.


AldousHuxley's picture

Elites decided that Chinese will be the next rung in the ponzi scheme because GI bill educated college grads are refusing to work for slave wages anymore whereas give Chinese new TV and refrigerators and they are willing to sell their livelihoods.


US is better off than EU because of China and Mexicans doing all of the heavy lifting for slave wages.


UK did the same with Indian coolies doing manual labor all over the british empire including Africa.

theTribster's picture

Yep, but just like the Mexicans are now leaving America the Pakistani's and the Indians are leaving Great Britain (if they can afford to leave). Many in GB are stuck paying for the trip to GB, they literally can't afford to leave. It's bad everywhere, in France they will be kicking foreigners out sooner than later, will not be long before its everywhere in Europe - blame the foreigners they r the problem. Obviously gubmints endorse this thinking although generally not formally...

lizzy36's picture

Well it is all about the "flow" after all.

And without the flow, liquidity slowly drys up, and before you know it, the ability to breed wealth effect, is non existent.

fonzannoon's picture

So for how many months now Bernak has assured everyone that should the data turn weak, he will move. Now that the data is turning weak, people think he will not move? Why not? Because according to him inflation is what...2%? Even that he says is transitory...It would make his life a little easier if commodity prices came down before he made a move...So maybe his recent "hawkishness" is his attempt to talk them down? Didn't he recently have a secret meeting with all the heads of the 5 families? Maybe he clued them in to this.

QE is coming and $5 a gallon may be coming too. Don't worry Brian Wesbury says the consumer can handle it. It's not an if it is a when.


Caviar Emptor's picture

From The Ministry of Propaganda :


The Calming Effect of Central Banks

EUROPE is hitting another rough patch. But this time, the troubles have barely rattled world financial markets. That’s a huge change.

Caviar Emptor's picture

Meanwhile labor conditions in Germany: 

Another German pay deal: 2nd biggest EU phone co Deutsche Telekom raise wages for 17k workers by 6.5% over 2 years-hits aim to contain costs

Jack Sheet's picture

The 6.5 % is only for workers with Telekom contracts. The temps (external agency staff) get close to bugger all increase, in addition to earning up to 40% less to start with.

fonzannoon's picture

hey Caviar I learn a lot from you. In one of your other posts you said " During the 1980s there was a strong attempt to stop the growth of wages and incomes".

Why was that?


Caviar Emptor's picture

@fonz: The "Great Inflation" of the 1970s was mainly blamed on spiraling wages and incomes. The theory went like this: each time contracts come up for renewal employees get an increase, which causes more demand-pull inflation for goods. Which then causes people to demand more wage increases. 

There were solutions proposed in those days on how to deal with it through "tax-based incomes policy" (TIPS). But ultimatly, one of the centerpieces of Freidman Chicago School monetary policy and the Reagan revolution was to win a political war against all forms of collective bargaining (including unions) to stop spiraling wage increases. In the very first weeks of the Reagan administration the test was the famous Air Traffic Controller's Strike On August 5, following the PATCO workers' refusal to return to work, Reagan fired the 11,345 striking air traffic controllers who had ignored the order,[6][7] and banned them from federal service for life.

That set the political tone. On the taxation front (and fiscal/monetary policy) the concept of Trickle-Down Economics was unleashed where the theory was that if tax breaks and favorable policy goes to "job-creators" that the middle class will beenfit eventually through a better economy. 

As we now know, there has been over 30 years of real income stagnation and a general downsizing of the US workforce through offshoring and outsourcing. The theory didn't quite work out in practice

AldousHuxley's picture

it was downhill for American middle class since the 1980s. free market bs , government support for capital versus labor, rise of wall street versus main street which will start shifting over to China

Elites had already decided that to keep the ponzi going, it was time to pursue imperialism where America as superpower controls

  • Food (via mega corps and "free trade policies")
  • Energy (via military conquests)
  • Military technology ( to support petro dollar system)
  • currency (tax on global commerce)
  • media/education (to brainwash globally)

Everything else is to be shipped to low cost centers.

New World Order:

  1. America as the military protector and banker
  2. Europe as front office labor
  3. India as cheap back office labor
  4. China as cheap factory labor
  5. Africa as cheap commodity provider
  6. Middle east as cheap energy provider
  7. Brazil and Latin America as cheap food provider

You no longer need American middle class or the lower class except become whores on TV or mercenaries for wars.

If any of the geopolitical regions attempt to rise up agains what America assigned them to do like Iran trying to diversify out of oil industries into technology then military enforcers will step in and put you in your place.


Ying-Yang's picture

Yup... sounds like a plan. Sucks doesn't it?

fonzannoon's picture

It seems to me that if Ben does not act then he has finally acknowled inflation. Then things get really fun.

Dick Darlington's picture

Here's something for Hatzius to think abt:


"We can't solve problems by using the same kind of thinking we used when we created them."

"Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction."

Insanity: doing the same thing over and over again and expecting different results.

Jim in MN's picture

Vampire Squid, squealing in its ear splitting sonic frequency:


Seriously, just die already.

ziggy59's picture

A 5k increase will shoot the Dow another 250 easy.

nasdaq99's picture

>4200 layoffs the last two day:


scroll back, this is not a healthy economy


print more fucking money you criminals we will soon need no jobs to move the market up another 5%

GernB's picture

I know of large layoffs underway in our industry. The slowdown has been visible for over a month now in decreased sales. It just hasn't sunk in to the talking heads yet that something real and very bad is happening already.

earleflorida's picture

'Too Big To Fail, QE's', have taken the anomalous jargon of 'StagFlation' - a latter-day progenitor mythical anomaly,... that contemporary financial wizard's once thought an aberration, as actually being a 'RealWord', worthy of a, 'Webster's Permanent Citation'!  

trampstamp's picture

Heck they are going to get a positive read off those numbers so they make mega cash on the pop then QE comes afterwards. Assholes!

Bam_Man's picture

The Fed is obviously not printing enough money.

Don't worry, when "their turn" comes they will more than make up for it. Unfortunately, right now it is the Bank of Japan's turn, probably followed by the BOE, then finally (after the election) the Fed's.

Can't have everyone printing trillions all at once or the global commodity producers may get wise to the con.

GernB's picture

With all due respect to Mr. Hatzius, the Fed has to operate on actual data, like actual historical NFP, not projections of what they think the NFP will be. Accurate or not, what Goldmans is projecting are guesses, admitedly intellegent, and probably correct guesses, but it is not actual data showing a confirmed slowdown. Setting aside the reality that what the Feds is already doing is not grossly irresponsible, and instead accepting thier premise, under that premise it would irresponsible of them to print money on anything less than actual data showing an actual slowdown, confirmed by several periods of data.

q99x2's picture

Maybe GS won't need that many employees as they retreat out of the wasteland they've left in Europe.

booboo's picture

They have pulled demand forward so far out into the future they are getting sperm counts on 13 year old boys and counting the sperm cells as "Taxpayers/Employed"  Getting hard to see over the horizon of next weeks setting sun ain't it boyz? BLS has to be looking so far out that they are looking at their own ass.

dizzyfingers's picture


"Nearly 60% of the revenue growth between 2009 and 2011 at the companies in the Journal's analysis came from outside the U.S."