Is Goldman Sachs Predicting A Double-Dip?

The economic mood at 200 West has officially shifted: In a report by Jan Hatzius, the Goldman chief economist warns that “the second half slowdown has begun.” Adding: “This is consistent with our long-standing forecast of materially slower growth of just 1½% (annualized) in the second half of 2010.” On top of that; Goldman’s Chief Economist is now sidelining with Paul Krugman & Co blaring an even louder warning about the government cutting off the fiscal subsidy spigot.

“There is some downside risk to our forecast of a gradual re-acceleration in 2011.”

Jan Hatzius


The two economic indicators that have broken Goldman’s indisputable faith in the recovery is the latest NFP and ISM reports. Here’s Hatzius’ commentaries:

“The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).”

Manufacturing Starts to Slow…

Jan Hatzius

“One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-? much of which was due to a sharp decline in the new orders index from 65.7 to 58.5? is the first significant step on this path.”

*

Here’s the rest – a copy of the full report.

h/t Zero Hedge

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