Think An American Economic Resurgence Is Imminent? Don't Be Stupid, Warns Goldman

Tyler Durden's picture

The recent brief uptick in economic high frequency indicators got you up? Feeling like suddenly the recession can be avoided because train traffic, whose sole goal is to stock up on even more soon to be liquidated inventory, hasn't yet collapsed? Happy by the beat in Non-farm payrolls, even though the beat was primarily a function of a one-time Verizon-strike boost, even as tax witholdings have hit an inflection point and are now declining? Amazed by the surge in car purchases, funded entirely by GM-targeted subprime loans issued by Uncle Sam, which have now declined for the first time in a year? Don't be silly, warns Goldman's Jan Hatzius, and presents a list why while the C-grade commentators out there may be caught off guard by the brief pick up in economic activity and proclaim the period of inverse economic growth over, it is all, quite, pardon the pun, "transitory."

Per Jan: 'Earlier this week we revised up our forecast for Q3 GDP growth to 2.5% from 2.0% previously, and incoming data have mostly surprised to the upside over the last month. However, we expect a slowdown to a ½%-1% GDP growth pace over the next two quarters." The reasons why: "First, despite stronger GDP, our Current Activity Indicator (CAI) shows growth of only 1.0% in September—better than August but still well below trend. This reflects recessionary levels in some survey-based measures like the Philadelphia Fed index, the NFIB small business index, and consumer confidence alongside the somewhat better employment, ISM, and housing data. Second, real income growth has stalled. Over the last year, real disposable personal income increased by just 0.3%. Except for a few brief dips in the past, real income growth this low has not occurred in the post-war period during expansions. Weak real income growth implies a challenging consumption outlook ahead. Third, recent data on consumer spending have been mixed. Vehicle sales have picked up, but this followed several months of weakness. The recent strength may therefore reflect a catch-up after supply-chain disruptions and not healthy consumer fundamentals. In addition, growth in non-auto consumer spending has slowed. Fourth, financial conditions have tightened sharply in recent months, and credit availability is probably deteriorating underneath the surface as the European crisis spills over into the US financial system." Of course, the one and only thing that really matters, a European implosion, leading to an acute global redepression, is not mentioned. With Dexia having about 24 hours left to live as a private company, it should be. That said, we would be remiss not to mention that the only purpose of Hatzius is to pave the path for the LSAP portfion of QE3. Be patient: what Goldman wants, Goldman always gets.

From Goldman:

Earlier this week we revised up our forecast for Q3 GDP growth to 2.5% (annualized) from 2.0% previously. Several recent reports that feed into our “bean count” estimate of GDP—including durable goods shipments, manufacturing inventories and construction outlays—beat expectations in August. Indeed, incoming data have generally surprised to the upside over the last month. For instance, an index of our MAP scores recently turned positive for the first time since April (Exhibit 1).

Both the employment and ISM reports for September are also consistent with growth around the economy’s underlying 2½% trend. In particular, the September employment report beat expectations, with a 103,000 nonfarm payroll gain, a longer workweek, and a large gain in household employment. If sustained, this pace of payrolls gains is consistent with a roughly stable unemployment rate—far from good when the starting point is 9.1% but also not disastrous relative to the negative views prevailing in the financial markets.

Despite this modestly better news, we expect a deceleration to a clearly below-trend ½%-1% pace over the next two quarters, for the following reasons:

1. CAI signaling below-trend growth. After this morning’s employment report, our Current Activity Indicator (CAI) shows annualized growth of 1.0% for September, following an increase of 0.1% in August. This broad-based measure of real activity includes the main monthly “hard” indicators as well as the major survey-based data. While some indicators signal faster growth (e.g. vehicle sales) and others are consistent with slower growth (e.g. consumer confidence), the CAI as a whole paints a somewhat weaker picture than the “headline” GDP, employment, and ISM data.

2. Real income growth has stalled. Over the last year, real disposable personal income—household after-tax income, a key driver of consumer spending—increased by just 0.3%. Except for a few temporary spikes related to tax law changes and dividend payments in the past, real income growth this low has not occurred in the post-war period outside of recessions (Q1 2003 came close). Unless households lower savings rates further, robust consumption growth is unlikely with real income gains so slow.

As we noted in a recent US Daily, weak personal income growth also implies that real Gross Domestic Income (GDI)—an alternative measure of aggregate output to GDP—could be very soft in Q3. Today’s employment report helps a bit, and the estimate is sensitive to assumptions about profit growth. Still, assuming profit growth does not accelerate strongly, aggregate income growth is likely to be weak. If correct, real GDI would show a gradual deceleration in growth year to date, in contrast to the acceleration in the real GDP figures.

3. Consumer spending only mixed. Vehicle sales rose more than expected in September following four months of disappointing results, and the rebound in the auto sector is a major reason why we expect stronger consumer spending in Q3 than Q2.

However, we see a mixed message in the recent data on household consumption overall. For one thing, the vehicle sales results are less impressive in light of the weakness that preceded them. Exhibit 2 shows total light weight vehicle sales (to both households and businesses) and a trend line that represents the pace of recovery until this year. While vehicle sales recovered significantly last month, they remain below levels implied by the previous recovery path (about 13.5 million units as of September). Therefore, the recent strength in auto sales may simply reflect a catch-up in sales after supply-chain related disruptions, and may not be a positive signal about consumer fundamentals.

Besides, growth in non-auto consumer spending has slowed. Real personal consumption expenditures excluding motor vehicles increased at an annualized rate of 1.1% in the three months to August, down from 2.0-2.5% earlier this year. Real goods PCE excluding vehicles declined at an annualized rate of 0.7% in the three months to August (Exhibit 3). Similarly, although nominal retail sales have increased, adjusted for price change retail sales have actually fallen over the last three or six months.

4. Financial and lending conditions have worsened. Our GS Financial Conditions Index has tightened by about 75 basis points in the last three months as equity and credit valuations have come under pressure in the wake of the European crisis. In addition, credit availability has very likely deteriorated too. So far, the evidence for this is limited to an uptick in the August NFIB measure of whether “credit was harder to get last time,” as shown in Exhibit 4. However, we suspect that the next senior loan officers’ survey due the week after the November FOMC meeting will show some deterioration as well.

Overall the balance of data points to sluggish growth. In light of very low consumer confidence, tightening financial conditions and the ongoing financial crisis in Europe, we remain cautious about the near-term growth outlook.

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Fukushima Sam's picture

The squid is desperately looking for the next place to dip its blood funnel but the bodies have all dried up!

upWising's picture

I just can't figure out why the domain "" is already taken.  Just doesn't make any sense.  Must be a Yiddish calamari shop in Indianapolis.

Fips_OnTheSpot's picture

growth outlook? Hahaa... make that "hilarious numbers outlook". Fixed.

Dick Fitz's picture

Tyler, AustrianBCT predicts the current uptick, due to the massive money printing. That's why SanFran is booming, unemployment is looking better, manufacturing is picking up, etc. It's a manipulated, short term boom.

But it will surprise the Keynesians, and the short sellers.

Checkout for more info.

spiral_eyes's picture

Every sensible economic voice i've heard recognises all the QE/ stimulus/ Keynesian measures as short term pumping that will do nothing to resolve the underlying problems in the American and global economic systems.

Optimists are now drawn to the idea that America is going down the Japanese route... because fifteen years with no net growth is "optimistic"....  

Sadly, it's much worse than that. Here's a ballsy prediction:

America won't be a nation anymore by 2050. 

UP Forester's picture

C'mon, why is everyone so negative?  Didn't anyone watch CNBS on Friday, with their new "NRI" announcements?

According to those jack-holes, "NRI" means "Non-Recessionary Indicators."


I guess when you run out of high-speed washers and floodlights to spin all the shitty numbers in a good light, you have to start inventing even more new lingo.

Sorta like panic => crash => bust => depression => recession => soft patch ad infinitum....

papaswamp's picture

"Happy by the beat in Non-farm payrolls, even though the beat was primarily a function of a one-time Verizon-strike boost, even as witholdingstaxes have hit an inflection point and are now declining?"


Actually TD I think the jobs number went up due to a statistical shift. There is a +700,000 worker difference between Not seasonally adjusted Civilian labor force (which came in at -322,000) and the seasonally adjusted one (which added 420,000+). When one digs deep into the is quite possible there was a big loss just hidden by seasonal adjustments. Employment to population ratio has declined Y/Y...again. This continues the plus decade long trend of fewer workers supporting a larger population of not only workage people but non-work age. ~140 million people (154 million considered part of workforce - 9.1% (unemployed)) support 170 million people (NILF+Unemployed+non-workage).

Subprime JD's picture

I wonder how much longer the economy will remain at stall speed for. What will be the catalyst for more job losses? Possibly from education and healthcare bubble bursting. Also federal sector and state level job losses.

dwdollar's picture

Both have enormous constituencies requiring enormous government funding. It may boil down to who exerts more political influence to keep their respective bubble inflated longest. The aging Boomers have the wealth, but the jobless Millennials have the street muscle. It will be interesting.

InvalidID's picture

The old get older but the young get stronger

They got the guns but we got the numbers

 Gonna win yeah we're taking over COME ON...


 Odd, maybe Jim was ahead of his time... Or maybe the boomers sold out, became the pinnacle of American success but, sadly, ate their grand children to do it.

CrashisOptimistic's picture

What exactly do you expect of an economy paying $105/barrel for oil?

bob_dabolina's picture

Think An Economic Resurgence Is Imminent? 


  • There are more people unemployed in America than live in Greece
  • The number of people on food stamps is equal to the population of Columbia
  • The US has enough debt that if it were to be piled (dollar on top of dollar) it would reach to the moon and back...twice

 I'm less than optimistic

the grateful unemployed's picture

is this Goldmans retail investor boilerplate (do the opposite). so what does the economy have to do with Wall Street? my thought is that when the economy does pick up money will flow out of stocks and into capital investment and inventory. the best thing that can happen to Wall Street is a lousy economy and more easy money.

Breaker's picture

What is the opposite of 0-1/2% growth?

the grateful unemployed's picture

theres a very real reason for this, when the economy starts to improve interest rates will increase, and the Fed will have to reduce its balance sheet.  wall street is like a parasite living off a dying man. they are doing a lot better by simply sucking off those nutrients they are feeding intravenously

buzzsaw99's picture

the bank holding company speaketh.

disabledvet's picture

on Zero-hedgeth. We must bow downeth. A Hail the Haizitus!(sp?)

buzzsaw99's picture

on Zero-hedgeth. We must bow downeth.




i speaketh unto-eth the squidus thusly:


physician heal thyself.


translation: why should i listen to an entity which won't even defend its own stock price?

Mattress Money's picture

Im in the USAF and I know they are cut manning civilian , and military like the armed forces are going out of business.

disabledvet's picture

fifty grand is a lot of money. as the saying goes "if you want to double your money fold it and keep it in your pocket."

RafterManFMJ's picture



I see the USAF has already slashed the budget for grammar and sentence construction.

anynonmous's picture
Could Naples land Chicago Mercantile Exchange? Gov. Scott says yes


perfect especially during hurricane season

Tao 4 the Show's picture

I picture investors and workers like an ailing fighter in the ring, so beat up he keeps going unconscious. Goldman, Gov, and Partners, UnLtd are the trainer in the corner slapping the poor schmuck around and reviving him with doses of "sentiment salts".

"Come on, pal, I got a lot riding on this. You're doin great, I mean awful, I mean ..., hell what was it I said last time? You gotta stay in the game and earn me some bucks, I mean, win. Yeah, that's it, youre gonna win, buddy, sure you are..."

Pure Evil's picture

I guess if you've dug a hole nearly to the center of the earth, when some dirt falls from the sides of your shaft to bottom, thereby raising your level a few feet from where you last stood, then things can suddenly start to look rosy.

Forget electing wiener/holder in 2010, lets re-elect Obama and whatever any other turd he can find for a running mate. Maybe then we can raise the floor of the shaft a few more feet after four more years, but only if we haven't managed to dig our way to China.

Fish Gone Bad's picture

C-grade commentators out there may be caught off guard...

You are way to generous my friend.  How about a nice healthy F- ?  All the news people only read the drivel that is in front of them, handed to them essentially by "the smartest people in the room".  Green shoots?  The recovery is around the corner?  It has been the same "We are almost there" story for a very very long time.  The news would be much more entertaining if they just played reruns of Gilligan's Island. 

They're creatures of habits,
run like rabbits,
Scared of a fear they can't name
Our own paranoia,
is looming before you,
And everybody thinks that it's a game...

(99.5% percent borrowed from Tim Weisberg & Dan Fogelberg's song The Power of Gold)

Atomizer's picture

Fuck You Goldman Sachs. The chickens are coming home to roost.

Row, row, row your CDO,
Create a new revenue stream.
Merrily, merrily, merrily, merrily,
Life is but a ponzi scheme.

1.       In January 1958, Mao launched the second Five Year Plan known as the Great Leap Forward, a plan intended as an alternative model for economic growth to the Soviet model focusing on heavy industry that was advocated by others in the party. Under this economic program, the relatively small agricultural collectives which had been formed to date were rapidly merged into far larger people's communes, and many of the peasants ordered to work on massive infrastructure projects and the small-scale production of iron and steel. All private food production was banned; livestock and farm implements were brought under collective ownership.


2.     Combined with the diversion of labour to steel production and infrastructure projects and the reduced personal incentives under a commune system this led to an approximately 15% drop in grain production in 1959 followed by further 10% reduction in 1960 and no recovery in 1961. In an effort to win favour with their superiors and avoid being purged, each layer in the party hierarchy exaggerated the amount of grain produced under them and based on the fabricated success, party cadres were ordered to requisition a disproportionately high amount of the true harvest for state use primarily in the cities and urban areas but also for export. The net result, which was compounded in some areas by drought and in others by floods, was that the rural peasants were not left enough to eat and many millions starved to death in what is thought to be the largest famine in human history.


3.     Moreover, most of the dams, canals and other infrastructure projects, which millions of peasants and prisoners had been forced to toil on and in many cases die for, proved useless as they had been built without the input of trained engineers, whom Mao had rejected on ideological grounds.


4.     They also argue that the Maoist era improved women's rights by abolishing prostitution, a phenomenon that was to return after Deng Xiaoping and post-Maoist CPC leaders increased liberalization of the economy. Indeed, Mao once famously remarked that "Women hold up half the heavens". A popular slogan during the Cultural Revolution was, "Break the chains, unleash the fury of women as a mighty force for revolution!" Skeptics observe that similar gains in literacy and life expectancy occurred after 1949 in the small neighboring island country of Taiwan, which was ruled by Mao's opponents, namely Chiang Kai-Shek and the Kuomintang, even though they themselves perpetrated substantial repression in their own right. The regime that took over in Taiwan was composed of the same people ruling the Mainland for over 20 years when life expectancy was so low, yet life expectancy there also increased. However, the United States helped Taiwan with aid and infrastructure, along with Japan and other countries.

kito's picture

Do the opposite and believe the opposite of whatever the squid says. Hows their 2500 gold call looking???

DeadFred's picture

Only Cramer beats Goldman as a contra-indicator

Breaker's picture

"Moreover, most of the dams, canals and other infrastructure projects, which millions of peasants and prisoners had been forced to toil on and in many cases die for, proved useless as they had been built without the input of trained engineers, whom Mao had rejected on ideological grounds."

Well there. It's different now. Our technocrats in Washington are highly educated and come only from the best universities and would avoid all of these mistakes, especially the dams. Doesn't that make you feel a whole let better?

dick cheneys ghost's picture

Bankers and Tankers.............US embassy in Iraq to employ 16,000.............mostly Iraq is doing quite

bonddude's picture

Trust GS, Don't trust GS. Well which is it ???
This seems oddly like Mar 09 lite.

slewie the pi-rat's picture

a what this nation needs... a good redepression
       ...we are not worthy!

       ...liquidity will be provided for those ready,
          and able
to cash o-u-t

so:  Call Now & Avoid The Rush, BiCheZ!

LeonardoFibonacci's picture

Lord Blanfein is not human, he is reptilian & he is here to destroy our planet

DeadFred's picture

I though the treaty gave JP Morgan to the Reptilians and the Goa'uld got Goldman Sachs.

anony's picture

If the market were to crash at anytime, it would increase my wealth by milliions.

For that reason, god will not allow it. 

She begins to writhe in agony whenever I get the least bit happy.  Joyful Giddiness is absolutely out of the question.

So the market will move willy nilly here and there, like a kite in low wind or on some days,  a gale.

But a crash?  Not until I cover all my shorts, sell my triple short ETFs, and cash in my Pesos for dollars.

I'll let y'all know when I cover so you can take the opposite bet.

You'll thank me later.

devo's picture

Do you leave your money in 3x short ETFs overnight or day trade them?

RickyBobby's picture

The dumbest of us know not to leave a 3x ETF trade on overnight.

DeadFred's picture

With Europe being the source of most of the markets present ills, overnight is where most of the gains come from in the 3X inverse funds/ You do have to be willing to stomach the losses when some idiot rumor runs things up, but I find that is mostly during the last hour of the US tarading day.

anony's picture

Very good point.  I kept my triple shorts for many months until the latest downturn turned them positive, at least for three days.  That seemed to vindicate my short stance.  But they are negative again but I am going to buy a bit more this morning. Because I'm  a masochist, and I said that the Back Street Boyz were a one year-then-burnout phenom.


the grateful unemployed's picture

i think the best action has been to buy weakness on Friday for the opening on Monday, check that out and see if it looks good

bugs_'s picture

could goldman be right this time?

Fozzy Slippers's picture

The bunkers are all GPSd and charted. All of you good contractors that have access to cement trucks, you're on call.

bankruptcylawyer's picture

the smart money is secretly and openly going offshore until the revolution is over and the counter-revolution begins. by then if wwiii hasn't broken out, they will be happy to recapitalize what is left of the broken spirit of the american people with their gold , art, and other prescious commodoties, and dollars, if they are still using greenbacks.

DruidDoc's picture

The systematic destruction of N. America's manufacturing and industrial sectors.  As in all things, what is generally true, there are exceptions.  In Canada, Alberta, the development of the ecologically dissed tar sands has been given every green light by the provincial government.  This has resulted in a huge shortage of thousands of workers.  While I do not know how easy it is for US citizens to fill this need, for those who have lost hope this may be an option to follow.  And yes we canadians are a sick lot with warped sense of humour.... the one <and perhaps only> advantage of long cold canadian winters..- is there is there no risk of termite damage to your homes.

dizzyfingers's picture


Oh-oh. Before viewing, have a tall glass of alcohol of your choosing.

anony's picture

Goldman Sucks is confirming my bias. Therefore, it is redundant at best. 

Any Ibank that thinks the world or US economy in partickler is going to increase GDP is spending too much time in the coke lines.