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Goldman Slashes 2021, 2022 GDP Forecasts Again, Blames Fiscal Drag, Slowing Consumer Spending

Goldman Slashes 2021, 2022 GDP Forecasts Again, Blames Fiscal Drag, Slowing Consumer Spending

Last week, we showed that in its latest Monthly Inflation Monitor, Goldman had once again hiked its 2021 year-end inflation forecast with the bank..

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Goldman Slashes 2021, 2022 GDP Forecasts Again, Blames Fiscal Drag, Slowing Consumer Spending

Last week, we showed that in its latest Monthly Inflation Monitor, Goldman had once again hiked its 2021 year-end inflation forecast with the bank now expecting core PCE of 4.25%, up from 3.80% the previous month, and a headline print of 4.64% (up from 4.12%)as a result of what Goldman called "temporary" shortages (which are clearly becoming far more permanent than most on Wall Street had expected), snarled supply chains, surging energy prices and in general a relentless demand for goods over services. Expect another hike at the start of October which will likely push Goldman's headline PCE above 5.0%

To be sure, this wasn't the first time Goldman had aggressively hiked its inflation outlook: as we also showed, the bank had consistently underestimated the persistent impact of non-transitory inflation every single month since April, when it launched a monthly increase of its inflation forecast to the tune of about 0.40% per month.

While this would be normal if overall economic growth was also rising, just the opposite is happening: a little over a month ago Goldman surprised Wall Street when it slashed its Q3 GDP forecast to just 5.5% from 8.5%, and from 9.5% just days before that, a move the bank's chief economist Jan Hatzius said reflected "hits to both consumer spending and production." Then last weekend, confirming the stagflationary direction of the US economy, Goldman once again cut its Q3 and Q4 GDP forecasts again, from 5.5% to 4.5% and from 6.5% to 5.0%, respectively. Incidentally, the latest Atlanta Fed GDPNow tracker for Q3 GDP has US growth collapsing to just 1.3%, not just far below the consensus Wall Street GDP estimate of 5%, but below the lowest economist forecast of just below 3.0%

Incidentally, last weekend we also predicted that as Goldman keeps hiking its inflation targets it will similarly keep slashing its GDP forecast, and just one week later we were proven right when on Sunday Goldman economist Joseph Briggs once again cut the bank's GDP forecast, only this time not just for the current quarter which as of today is just 3.25% from 4.0% as of last week, but for future quarters, to wit:

  • Q4 2021 to 4.5% vs. 5.0% previously

The bank also cut its GDP forecast for the first three quarters of 2022 as suddenly the "temporary" hit to growth appears to be far more persistent without on offsetting boost to GDP:

  • Q1 2022 to 4.5 vs 5.0% previously
  • Q2 2022 to 4% vs 4.5% previously
  • Q3 2022 to  3% vs 3.5% previously
  • Q4 2022 to 1.75% vs. 1.5% previously (the only forecast that was hiked)

Goldman calculates that changes imply a downgrade to 2021 GDP growth to 5.6% on an annual basis vs. 5.7% and 5.2% on a Q4/Q4 basis vs. 5.3%, and a downgrade in 2022 growth to 4.0% on an annual basis vs. 4.4% and 3.3% on a Q4/Q4 basis vs. 3.6%. Of course, since Goldman is still pretending some boost of growth will emerge eventually, Briggs notes that "these changes are mostly offset by upgrades to our growth forecast in 2023 and 2024, however."

Some more details:

We are currently tracking 2021Q3 GDP growth at 3.25%, although inventories and foreign trade remain important sources of uncertainty... we have cut our growth forecast for 2021Q4 to 4.5% (vs. 5.0% previously) and revised our growth forecast for 2022Q1-Q4 to 4.5%/4%/3%/1.75% (vs. 5.0%/4.5%/3.5%/1.5%).

These changes imply a downgrade in 2021 GDP growth to 5.6% on an annual basis (vs. 5.7%) and 5.2% on a Q4/Q4 basis (vs. 5.3%) and a downgrade in 2022 growth to 4.0% on an annual basis (vs. 4.4%) and 3.3% on a Q4/Q4 basis (vs. 3.6%).

These changes are mostly offset by upgrades to our growth forecast in 2023 and 2024, however.

What's behind the latest downgrade? Well, in addition to the continued lack of consumers' service spending, Goldman is now pointing to the sharp drop in fiscal support as the tailwind from trillions in Biden stimuli ends. As Briggs explains, he sees two main challenges to medium-term growth.

First, fiscal support is set to step down significantly through the end of the year. Although we maintain a positive outlook for household income because a recovering labor market and firm wage growth—particularly among low-wage workers—should keep income above its pre-pandemic trend through end-2022, the decline in transfer income will likely cause a pullback in spending for some households.

Second, consumers’ service spending will need to recover quickly to offset a decline in goods spending as the latter normalizes from its current elevated level. This will likely prove challenging while COVID cases remain elevated, since many people still feel at least somewhat uncomfortable engaging in many activities that were routine prior to the pandemic (left chart, Exhibit 1). Furthermore, for activities like going to a movie theater, many individuals don’t anticipate resuming normal spending patterns for at least another 6 months, suggesting a full normalization in economic activity may take some time (right chart, Exhibit 1).

Echoing its previous concerns about the lack of consumer spending on service, Goldman notes that "in addition to the near-term virus drag, we also expect that spending on some services and nondurables will remain persistently below its pre-pandemic trend, particularly if a shift to remote work results in some workers spending less overall."

Next, the bank decomposes its consumption forecast across the various growth impulses— reopening, fiscal stimulus, pent-up savings, and wealth effects—that drive its outlook and trend growth. The bank continues to expect that the fiscal impulse will remain very negative for the next several quarters as the spending contribution from pandemic-related fiscal transfer fades, but that other impulses will more than offset this drag.

A novel twist is also Goldman's admission that inventory restocking will not come as it had previously expected, and the bank's model now assumes that semiconductor supply will not improve until 2022 H1 "and inventory restocking will therefore be delayed. These estimates imply a moderate acceleration in growth in the near term, but a deceleration back to near trend by end-2022."

And while it remains to be seen just how positive the impact from reopenings will be - especially if the winter brings a new round of Fauci-driven restrictions to coincide with the coming flu season - one area where we disagree profoundly with Goldman is the bank's generous modeling of an upside boost to growth from "pent-up savings" which the bank expects to offset a substantial portion of the fiscal hit. As we will show in a subsequent post, the excess savings - in as much as they still exist - mostly benefit the top 1%, with the bulk of the population benefiting from only 30% of the total accumulated amount. As such the contribution to consumption from excess savings will end up being far smaller than most Wall Street strategists predict (since the propensity of the top 1% to spend their savings which are instead invested in the market, is far less than the broader population). The result: expect even more aggressive cuts to GDP growth in coming quarters - from both Goldman and its peers - even as inflation continues to rise, cementing a painful period of non-transitory stagflation for the US as the mid-term elections approach.

Tyler Durden Sun, 10/10/2021 - 15:54

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Government

Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

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Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

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International

Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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Government

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While “Waiting” For Deporation, Asylum

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several…

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several months we've pointed out that there has  been zero job creation for native-born workers since the summer of 2018...

... and that since Joe Biden was sworn into office, most of the post-pandemic job gains the administration continuously brags about have gone foreign-born (read immigrants, mostly illegal ones) workers.

And while the left might find this data almost as verboten as FBI crime statistics - as it directly supports the so-called "great replacement theory" we're not supposed to discuss - it also coincides with record numbers of illegal crossings into the United States under Biden.

In short, the Biden administration opened the floodgates, 10 million illegal immigrants poured into the country, and most of the post-pandemic "jobs recovery" went to foreign-born workers, of which illegal immigrants represent the largest chunk.

Asylum seekers from Venezuela await work permits on June 28, 2023 (via the Chicago Tribune)

'But Tyler, illegal immigrants can't possibly work in the United States whilst awaiting their asylum hearings,' one might hear from the peanut gallery. On the contrary: ever since Biden reversed a key aspect of Trump's labor policies, all illegal immigrants - even those awaiting deportation proceedings - have been given carte blanche to work while awaiting said proceedings for up to five years...

... something which even Elon Musk was shocked to learn.

Which leads us to another question: recall that the primary concern for the Biden admin for much of 2022 and 2023 was soaring prices, i.e., relentless inflation in general, and rising wages in particular, which in turn prompted even Goldman to admit two years ago that the diabolical wage-price spiral had been unleashed in the US (diabolical, because nothing absent a major economic shock, read recession or depression, can short-circuit it once it is in place).

Well, there is one other thing that can break the wage-price spiral loop: a flood of ultra-cheap illegal immigrant workers. But don't take our word for it: here is Fed Chair Jerome Powell himself during his February 60 Minutes interview:

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that's what's been happening.

Translation: Immigrants work hard, and Americans are lazy. But much more importantly, since illegal immigrants will work for any pay, and since Biden's Department of Homeland Security, via its Citizenship and Immigration Services Agency, has made it so illegal immigrants can work in the US perfectly legally for up to 5 years (if not more), one can argue that the flood of illegals through the southern border has been the primary reason why inflation - or rather mostly wage inflation, that all too critical component of the wage-price spiral  - has moderated in in the past year, when the US labor market suddenly found itself flooded with millions of perfectly eligible workers, who just also happen to be illegal immigrants and thus have zero wage bargaining options.

None of this is to suggest that the relentless flood of immigrants into the US is not also driven by voting and census concerns - something Elon Musk has been pounding the table on in recent weeks, and has gone so far to call it "the biggest corruption of American democracy in the 21st century", but in retrospect, one can also argue that the only modest success the Biden admin has had in the past year - namely bringing inflation down from a torrid 9% annual rate to "only" 3% - has also been due to the millions of illegals he's imported into the country.

We would be remiss if we didn't also note that this so often carries catastrophic short-term consequences for the social fabric of the country (the Laken Riley fiasco being only the latest example), not to mention the far more dire long-term consequences for the future of the US - chief among them the trillions of dollars in debt the US will need to incur to pay for all those new illegal immigrants Democrat voters and low-paid workers. This is on top of the labor revolution that will kick in once AI leads to mass layoffs among high-paying, white-collar jobs, after which all those newly laid off native-born workers hoping to trade down to lower paying (if available) jobs will discover that hardened criminals from Honduras or Guatemala have already taken them, all thanks to Joe Biden.

Tyler Durden Sun, 03/10/2024 - 19:15

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