US Economic Outlook 2010 [GS]

8/8/2019 US Economic Outlook 2010 [GS]

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US Economic Outlook

Jan HatziusEd McKelvey

Andrew Tilton

January 12, 2010

How Strong a Recovery?


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Goldman Sachs US Economics 2

Inventories and Fiscal Stimulus Abate

-3

-2

-1

0

12

3

4

5

-3

-2

-1

0

12

3

4

5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Inventory ContributionFiscal Stimulus*Total Contribution

Percentage points, annual rate

*Includes second-round (multiplier) effects on spending.Source: Congressional Budget Office. Recovery.gov. Our calculations.

Percentage points, annual rate

2009 2010 2011

Forecast


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99

100

101

102

103

104

105

t-6 t-4 t-2 t t+2 t+4 t+6 t+8 t+10 t+12Months from Recession Trough

99

100

101

102

103

104

105

1954 - 1990199120012009*

Index, recession trough = 100 Index, recession trough = 100

* Adjusted for preliminary 2009 benchmark revision.Source: Department of Labor.

Total Nonfarm Employment:

While AnotherJobless Recovery is Unfolding


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The Economy Has Enormous Spare Capacity

Spare Capacity - At Or Near Record Highs

Sector of economyCurrent

level(%)

Long-term avg.

(%)

Data

since

Excesscapacity (std.

deviations)

Goods sector Manufacturing capacity utilization 68.4 80.8 1948 2.5ISM manufac turing operat ing rate 70.1 82.3 1985 2.7Mining capacity utilization 85.2 87.3 1967 0.6

Service sector ISM non-mfg operating rate 81.3 85.9 1998 2.1Hotel occupancy rate* 53.8 62.4 1987 3.5Ut ilities capac it y ut iliz ation 77.9 87.7 1967 2.0

Housing/real estate sector Rental vacancy rate 11.1 7.2 1956 2.5Owner-occupied vacancy rate 2.6 1.5 1956 2.7Office vacancy rate 16.5 15.1 1986 0.6Industrial vacancy rate 12.9 7.8 1981 2.2Retail vacancy rate 18.6 14.0 1982 1.7

Labor market Unemployment rate 10.0 5.6 1948 2.8Underemployment rate** 17.2 9.4 1994 3.8

* Seasonally adjusted by GS using Cens us X-12 procedure.** Labor Department's "U-6" unemployment rate.Source: Dept. of Labor. Dept. of the Cens us. Federal Res erve. Institute for Supply Mgmt.

CB Richard Ellis. Property and Portfolio Research. Smith Travel Research.


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Spare Capacity is the KeyDriver of Core Inflation

-5-4

-3

-2

-1

01

2

3

4

5

-3 -2 -1 0 1 2 3 4 5 6Unemployment Gap (Actual minus CBO NAIRU)

C h a n g e

i n C o r e

P C

E I n f l a

t i o n

O v e r

N e x

t 2 Y e a r s

Source: Congressional Budget Office. Our calculations.

Current EstimatedUnemployment Gap


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The Funds Rate Should Be Negative

-10

-8-6

-4

-2

0

2

4

6

8

10

87 89 91 93 95 97 99 01 03 05 07 09 11-10.0

-8.0-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Actual

GS Taylor Rule Using GS ForecastsGS Taylor Rule Using FOMC Forecasts

Source: Federal Open Market Committee. Our calculations.

Percent

Using GSForecasts

Using FOMCForecasts

Proj.

Federal Funds Rate:

Percent


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Loans Have StagnatedDespite Skyrocketing Reserves

1000

1200

1400

1600

1800

2006 2007 2008 2009 20100

200

400

600

800

1000

1200C & I Loans: Bank Credit (left)

Adjusted Excess Reserves ofDespository Institutions (right)

Billions of dollars Billions of dollars

Source: Federal Reserve Board.


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We, Jan Hatzius, Ed McKelvey, Alec Phillips , Andrew Tilton and Sven Jari Stehn, hereby certify that all of the views expressed in this report accurately

reflect personal views, which have not been influenced by considerations of the firms business or client relationships.Global product; distributing entitiesThe Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certaincontractual arrangements, on a global basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, andresearch on macroeconomics, currencies, commodities and portfoli o strategy. This research is dis seminated in Australia by Goldman Sachs JBWere Pty Ltd (ABN 21006 797 897) on behalf of Goldman Sachs; in Canada by Goldman Sachs & Co. regarding Canadian equities and by Goldman Sachs & Co. (all other research); inHong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic ofKorea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs JBW ere (NZ) Limited on behalf of Goldman Sachs; in Russi a by OOOGoldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 19860265W); and in the United States of America by Goldman Sachs & Co.Goldman Sachs International has approved this research in connection with its distribution in the United Kingdom and European Union.European Union: Goldman Sachs International, authorised and regulated by the Financial Services Authority, has approved this research in connection with itsdistribution in the European Union and United Kingdom; Goldman, Sachs & Co. oHG, regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht, may alsodistribute research in Germany.General disclosuresThis research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, butwe do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations mayprevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals asappropriate in the analyst's judgment.Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking andother business relationships with a substantial percentage of the companies covered by our Global Investment Research Division. SIPC: Goldman, Sachs & Co., theUnited States broker dealer, is a member of SIPC (http://www.sipc.org).Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desksthat reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businessesmay make investment decisions that are inconsistent with the recommendations or views expressed in this research.We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in,and buy or sell, the securities or derivatives, if any, referred to in this research.

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US Economic Outlook 2010 [GS]