Goldman Sachs: The Economy is Stronger Than you Think

Recent strategy notes from Goldman Sachs are consistent with my overall view of the US economy – it’s stronger than the recessionistas have long thought.   So the good news is things aren’t yet contracting.  The bad news is the economy is still too weak to substantially bring down the rate of unemployment.  And the good/bad news is that this reduces the likelihood of QE this year.  More from Goldman’s Jan Hatzius (via ZH):

“The US economic recovery remains sluggish, but we believe that it will pick up a bit in coming months. Tuesday’s data were generally in line with this expectation:

1.    Stronger retail sales. The July retail sales report showed a clear upside surprise, with a 0.9% gain in sales excluding autos, building materials, and gasoline. The month-to-month strength was broad-based, with sizable gains in most core categories, although it mainly served to reverse some of the declines in the prior month.

2.    Slower inventory accumulation. Inventory accumulation has slowed clearly in recent months, with book-value business inventories up just 0.1% in June, down from a peak of 0.8% in January. We believe that this slowdown has been partly responsible for the disappointing performance in manufacturing surveys such as the ISM and Philly Fed. If it is ending, that should help the manufacturing sector over the next few months.

Our proprietary measures of US economic growth have also picked up a bit further. Our Q3 GDP tracking estimate rose to 2.3% from 2.2%, our current activity indicator (CAI) now stands at 1.2% in July after 1.1% in June, and our US-MAP index of US economic data surprises is moving quickly further toward neutral readings on a 60-day exponential moving average basis.”


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • adsanalytics

    One of the best ledaing indicators of activity (New Orders less Inventories) is sharply lower. In addition to that, both popular aggregate leading indicators (CB and OECD) have slumped, so it’s not clear at all that the US economy is on the mend


  • InvestorX

    Unless this time is really different (e.g. everybody has given up fighting the CBs), this market looks quite like the one in 2007 to me. All kinds of dark clowds were on the horizon, but the market rallied to a new high in October. Never matter that housing peaked in 2006 and was down YoY in late 2006, the first subprime originators went out of business in Feb 2007, together with the Bear Stearns hedge fund, then the July sell-off and August interventions by the ECB and so on.

  • Conventional Wisdumb

    These guys are all over the place alternating between pessimism and optimism depending upon their book. The fact that they are now pumping the economy leads me to think they now believe there will be no QE3 announced.

  • John

    I couldn’t agree more – folks are going to get run out of positions waiting for the big downside blowout. Happened in 1986, 1990, 1998, 2007. Too much passive money from investment flow driving out “patient” shorts. The market won’t go down until the last big short is out.

  • Pod

    Goldman Sachs does not have a “book”.
    Goldman Sachs does not make material directional bets.
    Jan Hatzius is an economist, not a trader, and he does not answer to, nor report to, nor discuss his work a-priori, with anyone that works in Goldman’s securities division.

    Your comment is just ignorant populism

  • Alberto

    When reading comments like this I shake my head. So a 2% growth with a 10% deficit spending is a triumph ? Why ? If the econony is unable to grow 4% to absorb the millions without a work what will happen ? Deficit spending forever ? There is someone who is able to think not in terms of months but years or more ?

  • Conventional Wisdumb


    Are you serious?

    GS makes most of its money from proprietary trading and as a principal trading for their own account.

    They may not make as much in the future under Dodd/Frank.

    Do you work for them?

  • B Ferro

    I worked on the sell-side and I agree with Pod.

    None of the prop traders give a rat’s you know what re: what Hatzius thinks and/or is publishing in terms of research.

    The idea of there being a fire-wall b/t research and every other group on the seucrities side of sell-side firms is very much true.

  • Pierce Inverarity

    But saying they don’t make material directional bets? That’s pretty preposterous, Chinese Wall or no.

  • B Ferro

    I don’t disagree.

    My thought was that POD meant they don’t make such bets to gain unfair advantage in front of economists/analyts at the firm publishing market moving info.

  • Malmo

    Good god, the economy sucks ass. Anyone who says different is smoking large quantities of cannabis. “Stronger than you think” is meaningless drivel.

  • Cullen Roche

    It wasn’t “meaningless drivel” back in June when the stock market was tanking and just about everyone thought a recession was imminent and I was saying the consensus was too negative….

  • http://pragcap Michael Schofield

    The economy doesn’t suck, it’s doing exactly what it was designed to do. Thirty or so years ago, this country embarked on a grand social experiment, dedicated to the civic minded idea of supply-side economics. By giving rich people everything they said they needed, which apparently meant all of that unnecessary middle class wealth, the rich could become the benevolent Gods they always aspired to be, showering us little people with an endless supply of $8/hr jobs. Much has been accomplished but there is so much more to do. I understand that the typical family of four makes $47000 a year. Surely they could get by on less. If only we would give more to those who simply want to give back…Despite our failure business conditions aren’t too bad it seems, creating decent profits. I’m sure they’re just short of the level required for sharing with the rest of us.:) OK, thats my sarcastic thought for the day. Sure, we’re getting screwed but let’s not lose sight of the fact that the economy is growing (smile it could be worse-more sarcasm) and there is (presently it appears) an opportunity to make some money in the markets. Which operate independently of the ecocomy. And remember, “Smoke cannibis if you must but never try to trade stoned”

  • Robert Rice

    Recessionistas!!!! That was utterly fabulous. Still laughing :-D

    You better watch out or they’re going to be calling you Exaggeratedrecoveryistas ;-)

    I’m an “it-aint-great-but-it-could-be-worse-ista”.

    Let’s call upon the gweat Spiwit for assistance in a pro-stimulus, pro-spending President and Congress being elected in November who collectively implement policies with an emphasis on productive efficiency, utilitarian value, fairness, and accountability. This could be a great time for us. It’s going to have to be rooted within the people’s joint will to vote for those politicians. We’ll need honesty, objectivity, and good judgment, which is not beyond our grasp.

  • Robert Rice

    Oh to be granted a meal from the crumbs of kings!