Goldman Sachs: US Growth Decline has hit a Bottom
By Bondsquawk
According to Goldman Sachs US Economics Analyst by Jan Hatzius, US Growth is likely to rebound after having been revised downwards for the last few months.
The Goldman Sachs US-MAP Index which tracks up/downside macroeconomic “surprises” relative to expectations has been in the negative since March but now has improved considerably in the last few weeks and could signal a march into positive territory.
“Although the surprises are still mostly negative, this is no longer quite as true as it was in May and June. This is intriguing, because the chart shows that surprises are quite persistent—in other words, an improvement in the second derivative of surprises often presages a turn of the first derivative into positive territory.”
Goldman Sachs believes that the data will be better in the coming weeks and there would be a slight acceleration of growth to 2%. One big reason behind their estimation was an end of temporary drags such as the downward effect of inventory cycles, payback for mild winter and distortions of seasonal factors that were a result of the financial crisis.
“We believe that these factors have held down some key indicators such as the household and establishment survey of employment in recent months. These drags have probably ended.”
According to Goldman Sachs the housing market has strengthened and the momentum is likely to build.
“The monthly survey carried out by the National Association of Homebuilders (NAHB) has surged in recent months and is now pointing to strong gains in single-family housing starts over the next 3-6 months. The risks to our forecast of roughly 10% growth in residential investment through the end of 2013 are probably on the upside. Prices are now also edging up, and the trough is probably behind us.”
Real Income has picked up as a result of falling commodity prices which are a large component of household spending.
“Real disposable income growth has picked up from around zero in early 2012 to 2.7% in the three months to May, the fastest pace since mid-2010. The pickup should translate into somewhat better retail sales, following the weakness seen in recent months.”
The GS Financial Conditions Index has reversed from the tightening that took place in May and early June.
“A small part of this is due to the improvement in home prices discussed in the previous bullet, but the more important reasons are the recovery in equity prices and the renewed decline in credit spreads.”
However, moving forward GS still expects help needed from the monetary side as inflation levels and unemployment would still be a matter of concern.
“We still expect the FOMC to ease policy further over the next 6-9 months, probably starting with a further lengthening of the funds rate guidance at the August or September FOMC meeting. We also still see a return to asset purchases financed by an expansion of the Fed’s balance sheet, although we think that this is more likely to come in late 2012/early 2013 when “twist 2” comes to an end.”
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10 Comments
And when was the last time this guy was right?
The socalled “bottoming of housing” has – IMO – a good reason. There’s still a lot of “shadow inventory” that’s waiting to flood the market. But rents of housing has come down more. The rental market is a market with more players and thus less easily “cornered” by e.g. banks. So, investors (wrongfully) think that investing in the rental I wouldn’t touch real estate even with a 20 foot pole.
Never heard of rising interest rates coming ?
So, investors (wrongfully) think that rental proporties are the place to be. Once banks are forced to liquidate their housing inventory then one can/will see real estate prices come crsshing down.
Yes, I know. The FED can increase banks’s reserves from here up to the moon.
Real income is probably a tourist looking for a mugger right now. The Fed will probably get creative, trying not to spark a commodity rally, but the drought is surely going to pressure food prices nearly across the board. It would be nice if he’s right; it’s always easier to play the long side. I’ll stay on the sidelines for now.
I just love the language.
“This is intriguing, because the chart shows that surprises are quite persistent—in other words, an improvement in the second derivative of surprises often presages a turn of the first derivative into positive territory.”
Right. And “often” it probably doesn’t presage anything. No wonder the 2nd most influential economist ever, after Adam Smith, called his own craft “a dismal science.” Do do that voodoo that you do so well.
.” Do do that voodoo that you do so well.”
I preferred that to the article content.
Cullen,
Do you have a Citigroup Economic Surprise Index chart? If so, can you post one for comparison?
Bloomberg used to make it public. Now it doesn’t any more.
Thanks.
Hi George,
I don’t have access to it, but I do have my own expectations index which I believe is a similar indicator. Since you asked so kindly I’ll post it here (I never post this index).
Thanks. Much appreciate it.
The last I saw the CESI somewhere (can’t recall), it showed it bottomed at about the same time as your chart.
Any real income gains will be quickly wiped out with more QE. In fact the real income gains since May have even stopped as oil prices rose about 10 dollars per barrel in the past month.