Goldman Drops Fri. Evening 'Bomb,' Projecting Unemployment at 8.75% at End of 2012
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 hikes 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 BizzyBlog.com.