July 16, 2011

Goldman Drops Fri. Evening ‘Bomb,’ Projecting Unemployment at 8.75% at End of 2012 (Also, CR Index Director Thinks 9.6% Peak Is Possible)

Per Reuters blogger James Pethokoukis, Goldman Sachs, demonstrating Democratic-friendly timing similar to that seen at the New York Times a month or so ago, published an extraordinarily gloomy economic forecast last night.

Here are some of the details he quotes:

“Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.”

“The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations …”

“… the slowdown of recent months goes well beyond what can be explained with … temporary effects. … final demand growth has slowed to a pace that is typically only seen in recessions …”

Pethokoukis also quotes Goldman saying that, though they’re not predicting it, a return to recession is “clearly a possibility given the recent numbers.”

James P., who correctly notes that Goldman’s Democratic-friendliness, calls the report “an economic bomb on President Obama’s chances for reelection.” No wonder Goldman threw it out there on a Friday night.

Buttressing Goldman’s gloom, Thursday night, in an interview I heard on the Simply Money program on 55KRC in Cincinnati (unfortunately, the podcast found here is garbled with dual audio streams), Ed Farrell, who directs the Consumer Reports Research Center, publisher of the widely read Consumer Reports Index, stated his belief, based on the underlying indicators in the index, that seeing the unemployment rate go up to 9.6% in the next several months “is not out of the question.” Farrell reminded listeners that many other indicators which were positive in March and April “gave back” much of their gains in June. Further, in a supreme but sad irony during an administration which is all about class warfare, Farrell noted that those in the bottom half of the economy in earnings are struggling mightily, as evidenced in continued weakness in retail sales at discount stores, while those in the upper half are holding their own.

Additionally, as I noted on Thursday — in something Chris Rugaber of the Associated Press conveniently missed, even though his report was supposed to be about the results of the June Monthly Treasury Statement — year-over-year growth in federal collections seriously stalled in June.

The administration is attempting to buck up its position by overhyping polling data supposedly showing that Americans want the federal budget problem addressed with a “mix” of tax increases and spending cuts. Even the Associated Press’s Calvin Woodward has conceded that “Obama stretches poll findings” in making such claims. Unfortunately, the poll questions never seem to ask what the mix of tax increases and spending should be, and, more fundamentally, don’t ask whether respondents would still support tax increases if they increased the chances of slower economic growth — which history demonstrates they most likely would, particularly in an economy which is already decelerating.

Pethokoukis wraps his piece by opining that “cutting tax rates and regulation … may be the only way Obama can win another term.” Good luck with that.

It will be interesting to see whether Goldman’s predictions even make it into establishment press reports, and whether any will carry over into Monday morning’s news shows and broadcasts. My guess: Very little, if any. That’s why the report came out on Friday evening.

Cross-posted at NewsBusters.org.

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UPDATE, 11:45 P.M.: If Goldman is right about 2Q11, it will be the worst quarter since the recession ended, as seen in this rub-it-in Reagan vs. Obama graphic also seen in the far right column —

ReaganVsObamaGDPpostrec7Qtrs

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4 Comments

  1. Tom,
    Here is a nice piece at Market Ticker about the outright Fraud by our crack whore congressional representatives.

    (The more I think about it, I really like Warren Buffett’s idea that if the deficit passes either 2% or 3% of GDP, a senator or representative can’t run for re-election.)

    Cut, Cap And Balance: Outright Fraud
    http://market-ticker.org/akcs-www?singlepost=2624805

    Sorry, I have to amend my previous Ticker: http://market-ticker.org/akcs-www?post=190085

    It’s a scam.

    Why? This article in the LA Times:

    http://www.latimes.com/news/nationworld/nation/la-na-debt-talks-20110716,0,3724140.story

    At the same time, Republican leaders orchestrated a series of public moves intended to soften the blow for conservatives. They agreed to give the House an opportunity to vote on two top conservative priorities: a so-called cut-cap-and-balance bill, which would order $111 billion in cuts in federal programs for 2012 and impose a cap on future spending, and a constitutional amendment that would require a balanced federal budget.

    $111 billion? Wait a second.

    First, the raw page from the Republican Study Committee says:

    http://rsc.jordan.house.gov/Solutions/debtceiling.htm

    1. Cut – We must make discretionary and mandatory spending reductions that would cut the deficit in half next year.

    The federal deficit this year is some $1,600 or $1,700 billion, depending on who you ask. It may, in fact, be higher since the game-playing going on right now at Treasury is hiding some of the debt. This is not an outlier – here are the deficits for the last several calendar (not fiscal) years:

    So this means that the plan calls for cuts of approximately $800 billion, right?

    Well, no. Not even their own referenced link does that!

    http://rsc.jordan.house.gov/news/DocumentSingle.aspx?DocumentID=240943

    The Hill, May 11 – House conservatives want to cut the budget deficit in half next year and reduce spending by as much as $381 billion.

    $381 billion is less than half of what actually has to be cut to meet the promise. So the lie is right there in plain sight.

    But now, if the LA times is correct, it’s even worse. It’s not $800 billion, it’s not $381 billion, it’s $111 billion, or approximately one eighth of what would actually meet the claim they’re making.

    Yeah, I know, the CBO says that deficits will “naturally” shrink to $1.08 trillion this coming year. Their assumptions to attain this require economic growth levels that are not going to happen because we’re two quarters into the year and we are tracking well below their assumed figures on both GDP and actual deficits.

    So into this deteriorating economic reality for our government do we increase the cuts so as to actually fulfill the promise?

    Nope – the politicians once again fail to do their job, fail to meet their promises, and take the easy way out.

    Again:

    Federal Debt cannot grow faster than GDP on an intermediate and long term basis. But it has. This is the cause of the problem. Keynes argued for deficit spending during recessions, but for increased taxes and reduced spending during growth, thereby acting as a counter-cyclical force and drawing down the debt to prevent the exponential runaway. Our government has continually done the first, ignored the second, and backed itself into a corner. The mathematics in the spreadsheet from yesterday are now asserting themselves, and we do not have ten years, and may not have five, to solve this problem.

    We must solve the problem now, but there is no political will on either side of the aisle to do so.

    Brace for impact folks.

    Comment by Greg — July 16, 2011 @ 12:28 pm

  2. The more I think about it, the more I like the idea of putting Uncle Sam on an allowance, say, $230 billion a month (which would be about 2007 spending levels. When it’s gone (every month), it’s gone). That would be about a 20%+ cut from current spending levels which are beyond ridiculous.

    Comment by TBlumer — July 17, 2011 @ 11:17 pm

  3. [...] quarters. Trouble is, Goldman Sachs and others just trimmed their second-quarter growth estimate to 1.5%. Goldman also wrote last Friday evening that a return to recession “clearly a possibility [...]

    Pingback by BizzyBlog — July 22, 2011 @ 12:00 pm

  4. [...] director of the widely read Consumer Reports Index stated his belief last week in a radio interview that that seeing the unemployment rate hit 9.6% in the next few months [...]

    Pingback by BizzyBlog — July 23, 2011 @ 8:01 am

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