Friday, January 11, 2013

Goldman's Hatzius: 10 Questions for 2013

by Bill McBride on 1/11/2013 08:59:00 PM

Some short excerpts from a research note by Goldman Sachs chief economist Jan Hatzius:

1.Will the 2013 tax hike tip the economy back into recession?

No. To be sure, it will likely deal a heavy blow to household finances, and we therefore expect consumer spending to be weak this year. ...

2.Will growth pick up in the second half?

Yes. This forecast is based on the assumption that the drag from fiscal retrenchment—i.e., the ex ante reduction in the government deficit—diminishes in the second half of 2013 but the boost from the ex ante reduction in the private sector financial balance remains large. In our forecast, this causes a pickup in real GDP growth to a 2½% annualized rate in 2013H2, and further to around 3% in 2014.
...
3.Will capital spending growth accelerate?

Yes. We expect a pickup from around zero in the second half of 2012 to about 6% in 2013 on a Q4/Q4 basis. This would contribute 0.6 percentage points to real GDP growth and offset most of the likely slowdown in consumer spending growth.
...
4.Will the housing market continue to recover?

Yes. The fundamentals for housing activity point to further large gains in the next couple of years.
...
6.Are profit margins bound to shrink in 2013?

No.
...
7.Will core inflation accelerate significantly?

No. We expect inflation as measured by the PCE price index excluding food and energy to stay around 1½%, moderately below the Fed’s 2% target.
...
8.Will there be a bond market scare over the budget deficit?

No. ... the large government deficits of the past five years are closely related to the dramatic balance sheet adjustment in the private sector. ... As the private sector balance sheet adjustment comes closer to completion, we expect the government deficit to diminish gradually ... By 2015, we expect the federal deficit to be down to $500bn, or just under 3% of GDP. If this forecast is correct, concerns about the federal deficit are likely to diminish over the next few years.
...
9.Will the Federal Reserve stop buying assets?

No. Admittedly, the minutes of the December 11-12 FOMC meeting suggest that most Fed officials currently expect QE3 to end by late 2013. But we would not make too much of this. For one thing, it is important to remember that the outlook for monetary policy depends on the outlook for the economy.
...
10.Will interest rates rise?

Not much. ... At the longer end of the curve, we do expect a small increase in 10-year Treasury yields to 2.2% by the end of 2013.

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