On Friday evening we learned that Jan Hatzius, Goldman Sachs′ chief U.S. economist, reported that following another week of weak economic data, Goldman Sachs cut its estimates for real GDP growth in the second and third quarter of 2011 to 1.5 percent and 2.5 percent, respectively, from 2 percent and 3.25 percent. Goldman’s forecasts for the fourth quarter and 2012 are under review, but even excluding any further changes, Hatzius reports, it expects the unemployment rate to come down only modestly to 8¾ percent at the end of 2012.
Hatzius went on to say:
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 … [emphasis added]
James Pethokoukis reminds us that two summers ago the White House made these forecasts: Starting in 2011, GDP would rise 4.3 percent in 2011, followed by 4.3 percent growth in 2012 and 2013, and another 4 percent in 2014. “Even in its forecast earlier this year,” Pethokoukis writes, “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.”
These forecasts now look to be ludicrously out-of-touch. (Joe Biden, remember, predicted more than 500,000 jobs per month in advance of last year’s Recovery Summer”). And of course those inflated growth figures helped keep the projected deficit artificially low.
To add to the depressing news, economist David Rosenberg told CNBC the economy is teetering on the brink of a second recession. “Everything is telling you how soft the underbelly of the economy really is,” Rosenberg said. “We’re just one small shock away from the economy going back into recession.” Rosenberg added, “It is absolutely not normal to have two soft patches this close together nearly two years after the recession ends. It doesn’t happen. This will be two separate recessions.”
And just in case people forget, it’s once again worth citing the words of one of Barack Obama’s top aides, David Plouffe, as well as DNC chairwoman Debbie Wasserman Schultz: Barack Obama “owns” the economy.
Indeed he does. And he will be judged on it.