Two economists’ missives to clients just arrived in my e-mail inbox, and they make for an interesting pair.
Goldman Sachs chief U.S. economist Jan Hatzius, in a note titled “More Signs of Stabilization,” writes:
A sharp improvement from the current pace is very likely, and a pickup from -7% in Q1 to -1% in H2 looks about equally likely to me as a pickup to +3% — i.e., +1% seems like a reasonable target. On the plus side, my experience over the years is that inventory cycles have a habit of surprising on the upside. On the minus side, we think capex still has a long ways to fall (especially in nonresidential construction), the upward pressure on the saving rate is likely to cap the consumer recovery, and the risk of additional financial “accidents” is likely to remain with us for quite a while.
Soon-to-depart Merrill Lynch chief North American economist David Rosenberg, in a note with the more cryptic title of “Second Thoughts on the Second Derivative,” writes:
Our view of the situation is that what is getting investors excited right now is the improvement in the second derivative in a variety of economic data points that were released in March, showing basically that the economy is no longer falling off a cliff. … While it now looks very clear that we have worked through the post-Lehman collapse that caused credit to freeze up, consumers to go comatose and businesses to dramatically pare their inventories, the economy is now transitioning back to its pre-Lehman trajectory
What was the economy’s “pre-Lehman trajectory”? -0.2% GDP growth in the fourth quarter of 2007, 0.9% in Q1 2008, 2.8% in Q2 and -0.5% in Q3. In other words, right in the range that Hatzius is projecting for the second half of this year.
Rosenberg presents his call as a skeptical reality check on Wall Street’s recent optimism. Hatzius has for the past couple of weeks been presenting his call as a modestly optimistic pushback to the extreme pessimism he hears from many clients. But their forecasts are almost exactly the same.