Goldman Sachs
economist Jan Hatzius said the
economy is entering a second
slowdown phase and he expects a
further decline in housing prices
into next year.
08/04/2008 - Today, he lowered his
fourth quarter outlook to flat GDP,
and he now expects two stagnant
quarters - Q4 and Q1 - before the
economy stages a sluggish recovery
in 2009.
Hatzius, and the Goldman economics
team, said in a note that "we are on
the cusp of a renewed deceleration
in growth." They said housing could
see another 10 percent decline,
based on the Case Shiller home price
index.
"Despite a few hopeful signs, the
housing downturn is far from over.
It's true that a few glimmers of
hope have emerged in recent data,"
the note said. Home price declines
have decelerated; builders are
making some progress clearing
inventories and the housing bill
should help reassure the mortgage
mark. "Still it's important not to
get carried away by these very
tentative signs," the note said.
High inventories of unsold homes and
tighter credit conditions are
negatives for the housing market.
"House prices are still falling at
nearly a 15 percent annual rate, and
with the glut of supply, downward
pressure on prices will persist into
2009," the note said.
Second quarter
GDP, reported
Thursday,
showed the
economy at the
mid rebound
point in the
"W" shaped
growth pattern
that Goldman
economists
have been
forecasting.
The rebound
was earlier
than expected
because of
quicker
disbursement
of the
stimulus
rebate checks
and
pre-spending
by consumers
ahead of the
stimulus, they
said.
Second quarter
GDP showed a
growth rate of
1.9 percent.
Improvements
in net foreign
trade were a
big positive,
adding 2.4
percentage
points to that
second quarter
growth. But
the weakness
outside of the
U.S. could
hurt that
growth source
and limit its
contribution,
the note said.
Goldman says
the downside
to the rapid
"ramp up" of
stimulus
spending could
make the "ramp
down" occur
sooner than
expected as
well. They do
see the
stimulus
spending
helping third
quarter
growth, but
its
contribution
will fizzle by
fourth
quarter. The
economists now
expect a 1.5
percent
annualized
decline in
real
consumption.
They revised
their fourth
quarter growth
outlook to
flat from 1
percent
growth.
The economists
also believe
inflation will
subside later
in the year
and because of
that, the Fed
will not raise
rates in the
foreseeable
future.
Goldman
economists
expect a 2
percent funds
rate through
2009, with
risks to the
downside in
the next six
to nine months
and upside
after that.
