A Ray Of Sunshine From Goldman

Today is a Norman Vincent Peale day. Nothing but positive thinking.

In that vein let me show you a graph from an updated Goldman economic forecast.

Yes it shows a horrible first quarter and a not so good second quarter but they see things turning around ever so slowly thereafter. What’s going to lead us out of the wilderness? The consumer according to them.

However, that weakness in consumer spending spelled a small piece of good news. Goldman economists now think that the worst is over for spending. “Consumers will begin to see some benefits from the recently enacted fiscal package, which should help ease the tight budget constraints imposed by the labor market deterioration,” Goldman economists said. “In addition, the tightening in credit standards during the second half of 2008, which probably played a significant role in the contraction in consumer spending, has since eased.”

They expect consumer spending to start rising again in the second quarter, and they see economic growth returning in the third quarter. Though the pain will continue in the labor market, the economists expect the economy to expand in the second half of 2009 — at a 1% annual rate — and throughout 2010, though it is expected to remain slow — below 2%.

“On balance, the pattern of recent data surprises and their impact on our economic outlook is encouraging in the sense that our forecast adjustments are concentrated in sectors that tend to lag economic activity,” Goldman economists said, but they still see some problems remaining in housing.”

Frequent readers of this blog will know that I have been way out on a limb with the same sort of thinking. It has been quite lonely there so I welcome the company. Now I just hope the weight of more people on that limb don’t cause it to snap off and dump all of us on our butts.

more: here

Update: If you want to get really geeky on this here are two links. One is to Mankiw’s blog and the other to the CEA analysis of the administration’s economic forecast. Mankiw has some counterpoints to the CEA analysis.

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