Goldman Sachs 2011 forecast would be an absolute disaster for Dems

December 3, 2009

This would be New Normal with extreme prejudice. Bad for Democratic incumbents in the 2010 congressional midterms, but it should make the White House political team nervous as well for 2012. If Goldman Sachs is right, of course. Here is the firm’s 2011 forecast:

The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011.

That said we see risks that could upset these markets.  On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening.  In addition, surging asset prices and worries about a “bubble” could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds.  On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments.

The implications? I hardly know where to begin: a) with unemployment rising all next year, a GOP blowout in 2010; b) certainly more job creation packages; c) no capandtrade; d) increased anti-Wall Street/Fed sentiment; e) third party prez candidate in 2012; an Obama challenger in 2012 (Dean?). But who really knows. This would be like a technological singularity where seeing beyond the event is pretty much impossible. Such a Long Recession (essentially) would be so contrary to American expecatations — such a slow-mo, psychological shock — that it would be a full-out system perturbation equivalent to 9-11 or the Iraq War.

15 comments

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Assuming healthcare is passed that 10.75% unemployment looks a bit rosy.Business is on hold until they have certainty on healthcare, cap and trade and card check. And that healthcare bill is a job killer.

Posted by J | Report as abusive

[...] This post from James Pethokoukis at Reuters is short, to the point and worth two minutes of your time. He cites a Goldman economic forecast and provides some good political analysis as to its implications. [...]

[...] James Pethokoukis » Blog Archive » Goldman Sachs 2011 forecast would be an absolute disaster for D… The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011. [...]

9/11? Iraq War?Nah, I think I’ll go with ’90s Russia but add a heaping dose of south-of-the-border state failure. The tax-cut folks will find they have a government small enough to drown in a bathtub and an economy to match once dollars are no longer accepted for oil.

Posted by Sundog | Report as abusive

[...] James Pethokoukis » Blog Archive » Goldman Sachs 2011 forecast would be an absolute disaster for D…. [...]

The health care BILL is not a job killer. What kills jobs is the fact we spend twice the per cent of GDP on health care than any other advanced economy. That is what we do NOW. That is what will continue to get worse and kill our economy if we don’t fix it. Talk about crowding out investment. Talk about suppressing wages and consumption. The health care BILL will help to address this mess. If it doesn’t work perfectly we can scrap the whole privatized system we have now and do Medicare for all.

Posted by lark | Report as abusive

Health care bill not a job killer? You can not be serious. The health care industry was responsible for an astounding 56% of job growth from 2002 through 2006, it is the one industry in which we have a comparative advantage in the world, and one which is difficult to shift off shore (though that is starting). Both bills have amazing taxes upon medical device and pharmaceutical companies, do you think that if you tax a pacemaker, the pacemaker pays the tax? If not the pacemaker, then who? You’ll say the pacemaker company. Well then, that means the cost of producing pacemakers goes up, and less are being used; so lets lay off people who work for pacemaker companies…..No one should be deluded into thinking that the health care bills being kicked around congress will in any way improve our well-being as consumers and patients.Tom

If I’m reading this right, you’re slant is that with all this dismal outlook, a different ‘party’ – who similarly don’t have a clue – will be in power. Six one way, half dozen the other. I think that reading the GS statement and turning it into politic ammo is exactly what is wrong with the entire American media (which, of course, is immediately mimicked by the average Joe who doesn’t know any better.) Do us all a favour: come up with solutions, don’t just point at problems… and quite frankly, the GOP doesn’t have any ideas other than the magic of corporate tax cuts BARF! You could cut rates to zero and it wouldn’t change a thing – you need to make money to pay taxes in the first place, and the only way these corps are making money is by parking at the Fed till and cutting workers by 20%. Which is why an independent running for prez (and getting Perot-like numbers) is more likely than not.To sum up, everything I’ve seen and read tells me that while green shoots and V-shape blahblah should cotinue until New Year’s, I’d expect the first quarter of next year to be the sharpest decline in GDP and equity markets of this recession. That would make Q2 the real make or break point, where either the slide is miraculously halted or America dips its toes into the abyss, preparing to plunge. And trying to spin this as a positive for the GOP is laughable.

Posted by Not_American | Report as abusive

[...] forecast predicts low growth rates of around 2.4% through 2011 with unemployment peaking in 2011.Close Forward this [...]

[...] James Pethokoukis » Blog Archive » Goldman Sachs 2011 forecast would be an absolute disaster for D… The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011. [...]

Pethokoukis is Happy…..

Posted by bill | Report as abusive

Let’s hope we can all keep our @$#! together until then…

[...] Optimistic? Stop reading now. Goldman forecasts unemployment peak mid-2011 at 10.75% – Reuters [...]

[...] this with Goldman Sachs’ forecast of the economic outlook: The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 [...]

It’s a permanent recession due to energy scarcties.Enjoy, Enjoy.

Posted by Poopypants | Report as abusive

[...] James Pethokoukis » Blog Archive » Goldman Sachs 2011 forecast would be an absolute disaster for D… The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011. [...]

This forecast may turn out to accurate. It may not. The only certainty is that the White House will continue to blame Bush no matter what happens.

Posted by jaydee | Report as abusive

uenployment a 10 percentthats funny we are going to 14 percent and higherpeople be hardy and denieing the facts is no way to go threw lifethis party just started and you all are invidedon cnbc last week said california will be at 14 percent uenploymentand then would top off because people will leave the state?hahahahahh no job talk theyll just leave for where?i suggest you grab your 5 point seatbelt and buckle up because this landeing will be a crashthen healthcare will pass because nobody will have insurance

Posted by doug big | Report as abusive

[...] Reuters shares Goldman Sachs 2011 unemployment forecast: 10.75%. [...]

[...] forecast for 2011 ?  If not, you may want to run to where  James Pethokoukis, over at Reuters gives the details. They’re predicting at this point minimal growth, in just about everything but unemployment [...]

the problem is people are ignoring the structural changes happening in a flattening world. They have been happening for a decade, hidden by house ATMs, and they will continue. Multinationals will continue to cut jobs, and outsource and small businesses ignored because they don’t have a lobbyist group.Expect a WPA progam if not now, by 2011. The US is trying to live in an old world, with old wage structure , and a heaving gap between the public workers and private. It’s broken. No one accepts it.http://www.fundmymutualfund.com/2007/ 12/do-bottom-80-of-americans-stand-chanc e.html

[...] to the latest economic forecast from Goldman Sachs, unemployment will peak at almost 11 percent in mid-2011, while inflation will [...]

[...] to the latest economic forecast from Goldman Sachs, unemployment will peak at almost 11 percent in mid-2011, while inflation will [...]

Why is it that all reporting agencies only reports less than half the truth about unemployment numbers?
Do you think that any persons NOT drawing Unemployment compensation are any less unemployed?
Why does this country either exxagerate facts that only favour a positive factor eg; election results?
But; in the equation that affects all of the country, especially voters, and taxpayers, you report the bottom of the real results.
Unemployment continues rising by thousands, with Michign having a real factor of 28%, Californiais 23%+, Forida is 23%+, Nevada is 21-23%. In addition Obama & Geithner has escalated our Total Indebtness to $66 Trillion, not; 1.8, 3.09, or 7 Trillion US Dollars. Wall Street accounts for the major part of this disaster. The stock market is another farce, the Government is dumping billions of our taxpayer money into the stock market to make it look like the economy is improving, this is only more Fraud & Deception by Obama, Geithner, Bernanke, et al; they should all be “Impeached” for Economic Crimes on a Grand Scale.

[...] Goldman Sachs 2011 Forecast would be an Absolute Disaster for Dems Sphere: Related Content [...]

And they should blame Bush for this mess. He only borrow how billions a day from overseas banks, squandered Clinton’s surplus, gave ridiculous tax breaks to irresponsible corporations and spent a billion a week rebuilding Iraq. YOU BET this mess has a lot to do with GW Bush.

Posted by Roy | Report as abusive

Correction for last for my last post. “He only borrowed how many billions . . ” Pardon my typos. But my itchy fingers reflected my over eagerness to respond to the ridiculous denials concerning the incompetent leadership in financial matters under the so-called leadership of GW Bush .

Posted by Roy | Report as abusive

[...] Pethokoukis at Reuters provides excerpts from the most recent Goldman Sachs forecast and writes about the political implications, [...]

[...] the Congressional Budget Office and  Goldman Sachs predict that unemployment will be considerably worse than the Obama administration [...]

If GS Said they were Lying I wouldn’t Believe Them!

Posted by tmajor | Report as abusive

[...] in time for President Obama’s jobs summit, Reuters columnist James Pethoukoukis gives us a glimpse at Goldman Sachs’  economic outlook, compiled by ace forecaster Jan Hatzius. (Found via Calculated [...]