Goldman economist Jan Hatzius is out with his latest Economic View note titled More Progress, which offers a fairly positive assessment on the direction of the economy, specifically the labour market.
Hatzius hints at further upward revisions to the Non-Farm Payrolls number, and he notes that once again, there was good strength in the “Sand States” (Nevada, Arizona, etc.). This is a theme Goldman has been hitting on before.
But, Hatzius is not bullish on GDP.
Why is our forecast for GDP growth still so muted? Apart from weather and seasonal issues, which are probably less important for the GDP data than for the labour market and the CAI, there are two reasons. One is that indicators of final demand still look quite soft. Final demand (GDP less inventories) grew just 1.1% in Q4 and an estimated 2% in Q1.
The other issue is oil. Our models say that a 10% seasonally adjusted gasoline price increase—roughly what we have seen since the second half of 2011—should take an average of 0.4 points off annualized growth over the following year. That’s not yet a huge effect, but it is the sort of magnitude that starts to matter from a forecasting perspective. We also don’t think that the low level of natural gas prices will offset much of the increase in gasoline prices; as we showed recently, household and business expenditures on natural gas, evaluated in terms of the commodity cost, are only one-ninth as large as expenditures on oil and oil products as of 2011. This means that changes in oil (and especially gasoline) prices are nine times more important than proportional changes in natural gas prices.
And so the theme of the GDP-less recovery continues. A decent job market, but no GDP gains… basically the opposite of the first years after the recovery.
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