James Pethokoukis

Politics and policy from inside Washington

Panic at the White House? Gloomy Goldman Sachs sees high unemployment, possible recession

July 16, 2011

Last night in a new report, Democrat-friendly Goldman Sachs dropped an economic bomb on President Obama’s chances for reelection (bold is mine):

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. … Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake. By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth. We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth. Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months. But the slowdown of recent months goes well beyond what can be explained with these temporary effects. … final demand growth has slowed to a pace that is typically only seen in recessions. .. Moreover, if the economy returns to recession—not our forecast, but clearly a possibility given the recent numbers …

Alarms bells must be ringing all over Obamaland today. Unemployment on Election Day about where it is right now? Sputtering — if not stalling — economic growth? To many Americans that would sound like the car is back in the ditch — if it was ever out. Maybe Goldman is wrong, but economists across Wall Street have been growing more bearish.

And recall that back in August of 2009, the White House — after having a half year to view the economy and its $800 billion stimulus response — made an astoundingly optimistic forecast. Starting in 2011, with Obamanomics fully in gear and the recession over, growth would take off. GDP would rise 4.3 percent in 2011, followed by … 4.3 percent growth in 2012 and 2013, too!  And 2014? Another year of 4.0 percent growth. Off to the races, America.

Even in its forecast earlier this year, Team Obama said it was looking for 3.5 percent GDP growth in 2012, followed by 4.4 percent in 2013,  4.3 percent in 2014.

Goldman Sachs doesn’t have to tell you things are bad. I don’t have to tell you things are bad. Everybody knows things are bad. Unemployment is at 9.2 percent (11.4 percent if the official labor force hadn’t collapsed since 2008 and 16.2 percent if you include discouraged and underemployed workers.)  Moreover, the economy grew at just 1.9 percent in the first quarter of this year and may have grown less than 2 percent in the second. Wages and income are going nowhere fast.

When will the White House signal a change of economic direction? Will cutting tax rates and regulation ever make it on the agenda? That may be the only way Obama can win another term. And time is running short.

 

Comments

It’s pretty obvious this President does not want to change directions. He has people around him who believe the Harvard Faculty Lounge Economic Plan will work eventually, it just needs more money. He’s had Robert Reich telling him all he needs is a WPA or some other New Deal program (which failed by the way) and things will be just fine. This is how you get to be a one term president.

Vote Republican and only be called a racist one more time.

Posted by bflat879 | Report as abusive
 

Obama, Obamacrats, Obamacare-all bad.
Now Obamanomics-also very bad.
It’s the reverse Midas touch. To quote our man-made-up climate change guru Al Gore: “Everything that is supposed to be down is up and everything that is supposed to be up is down.” It’ really to bad that those “…shovel-ready projects weren’t as shovel-ready as we thought. Ha, ha, ha …” What a comic!

Posted by obackarama | Report as abusive
 

Ha Ha Ha!!! And Odumbo and his flunkies helped bail out Goldman and took millions in campaign contributions and they get this news?? I love it. The economy is in a total depression and Obozo just wants more fed borrowing from the enemy to bail his sorry Party Boy butt out in 2012. Obozo loves flying around in his private jet, and his moron wife loves living off the broke taxpayer while she parties all over the world. Economic growth? There isn’t any!! Get used to it.

Posted by randall22000 | Report as abusive
 

All these trends will accelerate. All the “solutions” including the Ryan plan presume a return to 4% odd growth that is already six or eight months late. It will not arrive. Watch monthly revenues, they are only going DOWN. Increases in tax rates will drive that down faster. O will respond with further money printing, borrowing will scarcely be possible regardless of what happens with the debt ceiling.

Posted by megapotamus | Report as abusive
 

I’ve always gotten the feeling from the Democrats think a good economy “Just happens”. When it crashes, all you need to do is sit around and it will bounce right back up!

Usually this is foiled by the Republicans as they stop new taxes and programs from being created while the economy recovers. But this time there wasn’t enough Republican influence in Washington. The first two years of the Obama Presidency gave free rein to the Democrats.

This time they were able to implement anything their hearts desired. I suspect they just couldn’t wait for the economy to bounce back and take all the credit for it, plus new social programs and taxes.

At this rate, I’m hoping we don’t end up like Argentina.

Posted by ErikZ | Report as abusive
 

Send Obama back to Chicago so he can sit in the pews while Reverend Wright damns America.

We’ve had enough. One term and out.

Posted by pabarge | Report as abusive
 

We are a looooong way from next year. The only thing this article has done was to bring out the anti-Obama wolves. Yaaawwn!

Posted by holybulli | Report as abusive
 

White House panic? My god folks, we should all be. This is our country, our economy, we should not be rejoicing over bad news on the economy. I get the feeling that many people would be delighted to have an economic nightmare just to make the president look bad. Hardly American if you ask me.

Posted by odessaguy | Report as abusive
 

Perhaps Mr. Obama can pawn his Nobel Peace Prize.

It really is coming to that.

Posted by Elektrobahn | Report as abusive
 

Oddly, disliking what Obama and Obamanomics have done to the country doesn’t make you:

racist
unpatriotic (if you were a real patriot you’d just nod and say yes to anything the administration wants to do)
conservative
Republican
Tea Party

It just makes you intelligent. Welcome to the disenfranchised.

Posted by notthistime | Report as abusive
 

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