Photo: The Associated Press
Here’s another reason stocks are surging.After three months of better-than-expected data — what started with the strong ISM on September 1, and continued today with stronger-than-expected ADP — Goldman Sachs is giving a big hike to its forecast.
ZeroHedge has the note from economist Jan Hatzius.
Here are the key points:
- The US growth outlook has brightened significantly in recent weeks. As a result, we have raised our sights for 2011, calling for real GDP growth to average 2.7% for the year versus 2.0% previously. We expect growth to pick up further in 2012—to 3.6% on average for the year—though judgments that far out are clearly tentative.
- The main reason: recent data reveal a firmer trend in domestic final demand and suggest that it will be sustained via improvements in net hiring and credit availability. Meanwhile, the downside risk of a material tightening in federal fiscal policy—i.e., failure to extend expiring tax cuts—has diminished significantly.
- Although our revised outlook implies a meaningful drop in the jobless rate, it will remain high by historical standards, ending 2012 at about 8½%. With other measures of utilization also likely to show significant excess capacity, we expect core inflation to remain at the ½% year-to-year rate in 2012 that we have been forecasting for year-end 2011.
- In turn, this means that the Federal Open Market Committee (FOMC) is unlikely to increase the federal funds rate in 2011 and will probably stay on hold in 2012 as well. The future of unconventional easing is a much closer call. On balance, we think that Fed officials will buy more assets after the $600bn already committed. But we have scaled back our cumulative expectation for QE2 to $1trn from $2trn, and it is also possible that the program will end at $600bn.
- Risks exist on both sides. On the downside, we worry most that renewed home price declines—now expected to fall 5% or a bit more over the next year—will cause another round of consumer retrenchment; risks of a financial spillover from European debt woes and of significant fiscal tightening at home also lurk. On the upside: cash-rich companies may be more willing to spend on capital equipment or to expand payrolls than we now anticipate.
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