Goldman Sachs is turning increasingly bearish on the U.S. economy, expecting the nation to have added only 125,000 new jobs in April, as the effects of a warm winter, which buoyed employment late last year, wear off.
The forecast is far lower than the Reuters estimate of 170,000, and the average 177,250 jobs created every month from December to March.
According to a report by the bank’s Chief U.S. Economist Jan Hatzius, the jobs report will be a further sign of a weakening economy, where inventory accumulation has accelerated and final demand growth remains sluggish.
U.S. GDPon Friday showed the economy expanding at a 2.2 percent annual rate in the first quarter, slower than the 2.5 percent expected by economists polled by Reuters. And Goldman expects further weakness in the months ahead.
“Real income growth remains soft, partly because of higher energy prices, wealth effects are not yet particularly positive, consumer confidence remains modest, and again some of the recent strength in retail sales probably reflects weather effects,” Hatzius said.
All this points to the need for further easing by the Federal Reserve , says the U.S. investment bank, which believes the so-called ‘Operation Twist’ bond-buying program needs to be extended when it expires in June. Under the $400-billion Twist program, the Fed purchases longer-dated Treasurys and sells the same amount of shorter dated securities in order to drive down interest rates.
Hatzius cautions that the Fed’s unwillingness to further ease monetary policy could become a “headwind” for financial markets. While the Fed Chief Ben Bernanke signaled last week that the central bank was in no hurry to embark on a third bout of bond purchases, Hatzius argues that that’s premature.
“The inflationsurprise has been modest, the U.S. growth outlook on net has not changed much since January, and the “significant downside risks” from global financial market turbulence (and the US fiscal cliff) still look real,” Hatzius said.
“So the case for a successor program to Operation Twist still looks solid to us, and the FOMC’s (Federal Open Market Committee) apparent reluctance to deliver it is a concern,” he added.
Paul Heffner, CEO of Gen2 Partners, says QE3or not, the U.S. economy appears to be humming along. “The GDP numbers are disappointing but they are positive. So I’m going back and forth to the U.S. and seeing really good signs, so I am optimistic with what I am seeing,” he told CNBC Asia’s “Squawk Box” on Monday.
Chris Kimber, Managing Director of Wealth Management at Fat Prophets, agrees the U.S. is doing “pretty well” but adds that Bernanke can do more for the economy.
“(Bernanke’s) got his finger on the trigger. If they need to do anything else, he can continue to stimulate it.” Kimber told CNBC Asia’s “The Call” on Monday. “They have said that they’re going to keep interest rates on hold, so I’m pretty happy that the U.S. is going to maintain above that double-dip recession view.”