Goldman Sachs thinks 4Q growth could be as a high as 6 percent. But don’t think the firm is as cheery about the labor market despite the “stable” 10 percent unemployment rate in December. Some bullet points:
Talk about one last gasp from the horrible year that was 2009. On the political front, the December jobs numbers were terrible news for the White House and congressional Democrats in a midterm election year. Here’s how it plays out:
I think the “jobless recovery” meme stays firmly in place. Beyond the 85k jobs loss was the sharp drop in the labor force participation rate. If another 600k+ workers had not dropped out of workforce, unemployment rate would have been 10.4 percent. Here is what I have tweeting on the subject this AM:
The anti-Larry Summers buzz grow louder ( such as here, here and here.) There is a lot going on here. Liberals blogs have been all over him for pushing the $800 billion stimulus plan instead of the $1.2 trillion option presented to Obama by Christina Romer. Liberals, including Paul Krugman, thought it was too small then and have double-downed on that opinion since. (Alas, no high speed rail or modern-day WPA program for them.)
The trend is not the Democrats’ friend. At least not in 2010. The party of the sitting president almost always suffers losses in midterm congressional elections. To that time-tested dynamic now add voter angst about high unemployment, big deficits and controversial legislation. Expect Senate majority leader Harry Reid to lose his effective 60-seat supermajority and Nancy Pelosi to hand the House back to the Republicans. Here’s why 2010 is looking like 1994 all over again:
Here is an interesting one from MF Global fully adopting the New Normal mantra:
The IMF predicts that in 2010 the average government gross debt as a percentage GDP for the 7 major advanced economies will be 109% and 113% in 2011. It was only 84% in 2007 and 77% in 2000. Following the global down turn in the 1990s, average gross debt as a percentage of GDP increased from 58% in 1990 to 80% by 1996. History suggests that post recession, the reduction in government spending is rarely equivalent to the increase catalyzed by the retrenchment in the private sector. Given the breadth and depth of this past recession and lingering risks in the system, the pull-back in government spending will be even less. Moreover, the initiatives of the US government are costly and the passage of the healthcare bill will only increase the financing needs. As the global recovery takes hold it will be increasingly difficult for governments to attract interest in their securities as their yield reside at historic lows. Outside of valuation, fears over defaults will also keep the market wary of government debt. Widening sovereign CDS spreads underscore the market’s already elevated concern. While a widespread tidal wave of defaults is unlikely, poor auction demand in the wake of the recovery and in the face of heavy financing needs will increase trepidation about its possibility.
First, the Commerce Department:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.2 percent in the third quarter of2009, (that is, from the second quarter to the third quarter), according to the “third” estimatereleased by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent. The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 2.8 percent.
The insightful Andy Busch of BMO Capital Markets eyes it:
Here’s the ironic duality of the government spending creating jobs and massive deficits: it creates a small amount of short term jobs that steal a larger amount of long term jobs. Deficits are like weeds, when they are small they’re not a problem. When they get large, they block out the growth of what we want. It’s part of the reason why we have a conundrum of low interest rates while the deficit continues to expand. The markets are buying Treasurys because the prospects for strong growth are low and get further reduced with every new public sector spending initiative that adds to the deficit.