How tepid is the U.S. economy?
So lukewarm that economists at Goldman Sachs last week cut their economic growth forecast for the second time in a month, only to warn a few days later that “we already see downside risk to that estimate.”
Goldman now sees the U.S. economy struggling to limp forth at a 3% pace in the second quarter, down from 3.5% just three weeks ago and 4% at the start of the year. The firm expects the economy to have added just 150,000 jobs in April – down from 244,000 in March and well below the 178,000 CNNMoney forecast.
Economist Zach Pandl rounds up the usual suspects, blaming high oil prices, manufacturing disruptions triggered by the earthquake in Japan and various other temporary factors (such as tornadoes in the South and a drop in defense spending).
But those alone can hardly account for all the slack in what was supposed to be a reasonably vigorous recovery by now, he says. All signs point toward a broad-based slowdown, rather than one tied to temporary factors.
“Special factors do seem important, but they cannot explain all the recent weakness in the data, and the economy does seem to have slowed,” Pandl writes in a note to clients Friday. “We are somewhat puzzled by this because many of the trends that made us more optimistic around yearend 2010—progress in private sector deleveraging, easier credit and financial conditions, and an improving labor market—are still in place.”
Pandl notes that the firm’s analyst index – which tracks new orders, sales and shipments, employment, materials prices and inventories – has fallen to levels last seen during the spring 2010 slowdown that ended only when the Fed promised to stoke up activity with the bond-buying plan dubbed QE2. If you think the Fed is going to have trouble walking away from quantitative easing, you aren’t alone.
Goldman is hardly the only firm to be humming this tune lately. Economists at Bank of America Merrill Lynch last week cut their second-quarter growth forecast to 2%, warning that a run of “dreary” data doesn’t seem likely to end suddenly.
But Goldman was so bullish at the end of last year that a pronounced darkening in its outlook is ominous – and there is every reason to believe the bad news isn’t over. Another day, another giant problem for Ben Bernanke.
“If the data flow fails to improve in coming months,” says Pandl, “we may need to consider a further downgrade to our US growth forecasts.”