The latest from Goldman’s Chief Economist, Jan Hatzius, is not exactly a ringing endorsement of the stock market (see their 2010 outlook here & their top trades for 2010 here). Hatzius says the recovery is likely to continue to be very slow and that unemployment is likely to spike higher in the near-term accompanied by little to no inflation. Hatzius claims that the second half recovery in 2009 was entirely driven by the stimulus and inventory restocking. In other words, it is nothing to get excited about as neither are sustainable trends. What concerns Hatzius most going forward are 5 continuing negative trends:
1. Continued saving by households
2. Weak labor income
3. Fiscal drag from states and local governments
4. Vacant homes and unused industrial capacity resulting in low private sector investment
5. Limited credit availability
Although the labor markets are showing signs of improvement in recent weeks Hatzius sees a continuing “jobless recovery” and persistent weakness into 2011. He is calling for a climb in the unemployment rate from the current level of 9.7% to 10.5%. He continues to believe inflation will remain well below trend and that the Fed is on hold for the remainder of 2010 AND 2011.
Based on this data Goldman is now calling for just 1.5% growth in GDP in the second half of 2010.