Not long ago I noticed that manufacturing and some import/export data had come in significantly below expectations, enough to warrant a downward revision in Q2 GDP.
Well, the results are coming in now and they’re pretty damning. Goldman’s out with a report today predicting it at 1.5 percent, down from the 1.8 percent originally predicted at the end of Q2. Even more shocking is their prediction for unemployment by election time 2012. Goldman sees unemployment at a stunning 8.75 percent at the end of 2012 barring “further changes.” Goldman is also saying that recession is now a possibility. They do say however, that the third quarter will see some resolution to the Japanese earthquake disruption, so the coming months may not be as bad.
A section of the report, via Reuters, cleaned up a bit for clarity.
New estimates for real GDP growth in the second and third quarter of 2011: Between 1.5% and 2.5%, respectively. Down from original estimates 2% and 3.25%.
Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.
The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations.
Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake. By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth. We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth. Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months.
But the slowdown of recent months goes well beyond what can be explained with these temporary effects… 
final demand growth has slowed to a pace that is typically only seen in recessions. Recession is not our forecast, but clearly a possibility given the recent numbers.
Of course, it’s always worth including a disclaimer that this is Goldman and they have their own agenda, but it’s not in their interests to make wrong predictions either. So take that for what it’s worth.
