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US Economics Analyst

Issue No: 10/14


April 9, 2010
FOR THOSE PERMISSIONED:

Goldman Sachs Global ECS Research


at https://360.gs.com

Housing Holds the Key to the Consumer Conundrum


Real consumer spending continues to outrun The Standard Net Worth Model
our projections despite a persistently weak has Over-Predicted Saving
income trend. In the latest example, the Percent of disposable income Percent of disposable income

Jan Hatzius Goldman Sachs Retail Index of same-store 14


Out-of-Sample
14

jan.hatzius@gs.com sales gains soared to a record year-to-year 12


Forecast*
12
212 902 0394 reading of 11.3% in March, albeit from a
depressed base and with some help from the 10 10

Ed McKelvey early timing of Easter.


8 8
ed.mckelvey@gs.com
212 902 3393 As a result, the personal saving rate—at
6 6
3.1% in February and probably lower in
Alec Phillips March—remains far below the 7%-ish level 4 4
alec.phillips@gs.com historically associated with the current 4.9x Personal Saving Rate:
202 637 3746 ratio of household net worth to disposable 2 Actual 2
Forecasted*
income. This is just the latest episode in a 0 0
Andrew Tilton long line of over-predictions of saving, 55 60 65 70 75 80 85 90 95 00 05 10
andrew.tilton@gs.com
212 357 2619
stretching back at least 20 years. * Based on a regression of the saving rate on the ratio of net worth to
disposable income, 1952-1990.
Source: Department of Commerce. Our calculations.
However, if we assume that households treat
Sven Jari Stehn residential investment outlays on a par with No Over-Prediction for the Household
jari.stehn@gs.com
consumer spending in their everyday lives, Financial Balance
212 357 6224
and redefine the saving rate accordingly, the Percent of disposable income Percent of disposable income

David Kelley
current misalignment between saving and net 12 12

david.kelley@gs.com worth disappears and the adjustment in 10


Out-of-Sample
Forecast* 10
212 902 3053 recent years looks more substantial.
8 8
Moreover, such a redefinition also appears to
6 6
Maria Acosta-Cruz have avoided the systematic forecast errors
maria.acosta-cruz@gs.com of the past two decades. 4 4

212 902 6709 2 2


Given these results, it is much easier to see
0 0
how consumption could continue to surprise
-2 Household Financial Balance: -2
to the upside of our cautious forecast, even
Actual
though growth in real disposable income is -4
Forecasted*
-4

apt to be sluggish. This is especially likely if -6 -6

residential investment remains subdued, as 55 60 65 70 75 80 85 90 95 00 05 10


* Based on a regression of the household f inancial balance (expressed
that would make more room in household as a percentage of disposable income) on the ratio of net worth to
budgets for spending on other items. disposable income, 1952-1990.
Source: Department of Commerce. Our calculations.

Important disclosures appear at the back of this document.


GS Global ECS US Research US Economics Analyst

I. Housing Holds the Key to the Consumer Conundrum


Sluggish growth in consumer spending has been a key
element of our below-consensus outlook for the US Exhibit 2: Saving is Low Relative to Net Worth
economy. This part of our forecast has rested on two 14

assumptions. First, we figured that households would


try to boost saving in response to the massive loss of 12

net worth suffered during the financial crisis; in other


10
words, they would try to keep increases in spending

(Pct of Disposable Income)


Regression Line
below the expected growth rate of disposable (after-

Personal Saving Rate


1952 - 2009
8
tax) income. Second, we thought that weakness in
hiring and deceleration in wages would limit growth
6
in labor income—the largest part of personal income.
4
However, real consumer spending has outrun our Feb 2010*
projections ever since the recovery began in mid-
2
2009, most prominently last summer and again in
recent months, as shown in Exhibit 1. The first of
0
these misses was due mainly to last summer’s “cash 4.0 4.5 5.0 5.5 6.0 6.5
for clunkers” program. In contrast, the latest set of Ratio of Net Worth to Disposable Income
surprises (including the absence of a significant post- *Assumes net worth ratio was 4.9x, the same level at year-end 2009.
Source: Dept. of Commerce. Federal Reserve Board. Our calculations.
clunker payback) has no similar one-off explanation;
in fact, the latest surge has occurred despite extremely
adverse weather conditions during most of the winter.
In this issue of the US Economic Analyst, we offer an
In just the latest example of strength in spending, the
explanation for the failure of the personal saving rate
Goldman Sachs Retail Index of same-store sales gains
to rise as anticipated. In essence, we add residential
soared to 11.3% in March—a record high for the 21-
investment outlays—which are, after all, undertaken
year-old index, albeit from a depressed year-ago level.
by households—to consumer spending to produce an
alternate measure of saving: the household component
Income, on the other hand, has underperformed even
of the private-sector saving/investment balance.
our low-ball expectations. As a result, the saving rate
Defined in this way, household saving has behaved
has edged down since last summer, when it was
exactly as predicted by its historical relationship to net
already depressed by the cash for clunkers program.
worth. In fact, this relationship has been more stable
In February, the saving rate stood at 3.1%, well below
than the conventional saving/net worth model, which
the 7%-ish level implied by the net worth ratio, as
has consistently been too high in its predictions for the
shown in Exhibit 2. It must have dropped further in
personal saving rate over the past two decades. The
March, judging from the latest retail data and the
likely reason for this: households do not distinguish
increase in vehicle sales reported last week.
between investments in housing and other forms of
spending the way the national income accounts do.
Exhibit 1: Consumption Outruns Expectations
Percent change, annual rate Percent chnage, annual rate The bottom line for our consumer spending outlook is
4 4 mixed. Unfortunately, we find no reason to be more
Growth Rate in Real Consumption: optimistic about disposable income growth. While job
GS Forecast 9 Mo. Ago
growth is apt to pick up modestly, it remains below
GS Forecast 6 Mo. Ago
3 3
cyclical norms; meanwhile, wage increases are ebbing
GS Forecast 3 Mo. Ago
and taxes are set to rise over the next year. However,
As Currently Reported/Estimated
as long as residential investment remains depressed,
we also see no reason why spending should rise more
2 2
slowly than disposable income.

Saving and Net Worth—


1 1
Better in Theory than in Practice…
The conventional model of saving and net worth
posits a negative relationship between these two
0 0
variables based on a life-cycle model of consumer
Q3 Q4 Q1
2009 2009 2010 behavior, in which households aim to accumulate a
Source: Department of Commerce. Our calculations. targeted level of net worth during their working lives.

Issue No: 10/14 2 April 9, 2010


GS Global ECS US Research US Economics Analyst

Exhibit 3: The Standard Net Worth Model For a while, this forecast did well. During the most
has Over-Predicted Saving intense part of the crisis, the personal saving rate
Percent of disposable income Percent of disposable income
jumped from 1% in early 2008 to almost 5½% about a
14 14
year later (on a three-month average basis) as US
Out-of -Sample households retrenched sharply; federal stimulus also
12
Forecast*
12 helped. However, the saving rate has retraced about
half of this increase over the past year and, as already
10 10 noted, now sits well below the “desired” level implied
by the current ratio of net worth to disposable income.
8 8

There are several possible explanations for this gap—


6 6
beyond the obvious possibility that the model is
4 4
simply wrong: (1) Consumers may have misjudged
Personal Saving Rate:
their income, in which case cutbacks in spending may
2 Actual 2 be on tap; this is a bit hard to believe in the current
Forecasted* environment of upside data surprises but certainly
0 0 conceivable.1 (2) Personal income could be higher
55 60 65 70 75 80 85 90 95 00 05 10 than currently reported, in which case saving—
* Based on a regression of the saving rate on the ratio of net worth to
disposable income, 1952-1990.
measured as the residual between income and
Source: Department of Commerce. Our calculations. outlays—would also be higher; as we noted recently,
GDP as measured by income receipts is running below
Unusually large increases in net worth bring GDP as measured by expenditures.2 Or, (3) the
households closer to their ultimate objectives and money freed up by rising delinquencies might be
therefore permit modest increases in spending—i.e., helping to boost spending while not affecting official
less saving—while large setbacks in net worth have estimates of income or saving.
the opposite effect. This inverse relationship has
already been shown in Exhibit 2. …Until We Take Housing into Account
While any of the foregoing explanations is possible,
Although well grounded in theory, this model has the most convincing one in our view stems from the
consistently over-predicted the saving rate over the difference between how the national income accounts
past 20 years. This is shown in Exhibit 3, which plots treat residential investment and how we think the
what the simple saving/net worth model—fitted to people making those outlays probably regard them. In
data from 1952 through 1990—would have predicted the national accounts, residential investment—which
for the saving rate over the past 20 years (light line). covers the construction of new housing, improvements
Other models, fitted with additional variables to and alterations of existing homes, and brokerage
explain these errors after they emerged, have not done commissions—is a stand-alone item of expenditure,
much better in catching subsequent movements. This separate from consumer spending. It therefore has no
should not come as a great surprise, as forecasts of bearing on the personal saving rate as conventionally
sluggish US economic activity predicated on negative calculated. However, while most households probably
wealth effects—including several of our own—have understand that the purchase of a home or a major
foundered frequently over this period. Put simply, it renovation is a much bigger investment than anything
has rarely paid to bet against the American consumer, else they buy, they still see it as spending. If so, then
at least not in the last couple of decades. residential investment and consumer spending are
more fungible than implied by the national accounts,
That said, if there was ever an event to trigger a big and the saving rate should therefore subtract both
reset in personal saving, the financial and economic types of expenditure from disposable income.
crisis of the past two and one-half years would seem
to be it. This was, after all, the worst recession in 70 The result of such an adjustment is shown in Exhibit
years piled on top of a financial panic often described 4, which plots both measures of the saving rate from
as a once-in-a-century event. Moreover, consumers
went into this period saving barely 1% of their 1
disposable income. Under those circumstances, it The misjudgment could also come via the paradox of
seemed reasonable to expect that consumers would try thrift, in which a widespread increase in desired
saving hurts economic activity enough to push income
to push saving back into the upper-single-digit range below expectations.
that looks consistent with their reduced net worth 2
See “How Strong Was GDP Growth Really in Q4?”
positions and that had prevailed before the downtrend US Daily Comment, March 25, 2010. As it turned out,
of the past 20 years. GDP as measured by income rose a bit faster than
GDP as measured by expenditure in the fourth quarter,
but the level is still measurably lower.

Issue No: 10/14 3 April 9, 2010


GS Global ECS US Research US Economics Analyst

Exhibit 4: The Household Financial Balance Exhibit 5: No Over-Prediction for the


Shows a Bigger Upswing Household Financial Balance
Percent of disposable income Percent of disposable income Percent of disposable income Percent of disposable income
10 10 12 12
Out-of -Sample
10 Forecast* 10
8 8
8 8
6 6
6 6

4 4 4 4

2 2
2 2
0 0
0 0
-2 Household Financial Balance: -2

-4 Actual -4
-2 -2
Forecasted*
Household Financial Balance -6 -6
-4 -4
55 60 65 70 75 80 85 90 95 00 05 10
Personal Saving Rate
* Based on a regression of the household f inancial balance (expressed
-6 -6 as a percentage of disposable income) on the ratio of net worth to
90 92 94 96 98 00 02 04 06 08 10 disposable income, 1952-1990.
Source: Department of Commerce. Source: Department of Commerce. Our calculations.

1990 on. Readers who have followed our research on More importantly, when we substitute the household
the financial saving/investment balances of various balance measure of the saving rate into the saving/net
sectors of the US economy may recognize the new worth model, the problems noted earlier disappear
measure as nothing more or less than the household completely. In particular, the over-prediction bias is
component of the private-sector balance. The only no longer evident, as shown in Exhibit 5. While the
difference is that we have scaled it to disposable path forecasted by the model fitted to data from 1952
income rather than to GDP, to make it more directly through 1990 misses some twists and turns and
comparable to the conventional saving rate.3 forecasts others that never happened, it is remarkable
that it does not go off track over such an extended
Two points pop out immediately from Exhibit 4. period.4 And the one turn that it catches quite well is
First, when outlays for housing are taken into account, the latest upswing. Consistent with these results, the
US households dissaved throughout the decade-long full-sample estimates are almost identical to those for
housing boom from the mid-1990s to the mid-2000s. the shorter sample. In both cases, the current level of
This makes sense given the nature of that event—the the saving rate as defined by the household financial
prospect of large capital gains in residential real estate balance is right in line with the current level of the net
enticed many households to lever up their balance worth ratio.
sheets. (Bear in mind that neither saving rate includes
capital gains, on real estate or on other assets.) Finally, our analysis suggests a reason for the renewed
strengthening in consumer spending in recent months,
Second, households’ saving response to the stresses of namely that reduced expenditure on housing has freed
recent years has been both much larger and longer in up funds for other uses. The homebuyer tax credit
duration than implied by the conventional saving rate. passed as part of the American Relief and Recovery
According to the household financial balance, the Act (ARRA) originally had a deadline of November
adjustment got underway in late 2005, when housing 30, 2009. While that was eventually extended (to
activity began to turn down. By mid-2009 this April 30, 2010 for contracts and June 30 for closings)
measure of the saving rate had risen by 9 percentage home sales collapsed during the winter and have yet to
points of disposable income, a move much more in show much life in advance of the next set of
keeping with the dimensions of the crisis itself. deadlines. If households perceive some degree of
substitutability between housing activity and
consumer spending, then it stands to reason that a
pullback in one would make more room for the other.
3
And the true addicts of the saving/investment balance
literature will note that we have said nothing about the
statistical discrepancy, implicitly putting it somewhere
4
else other than in the household sector. As it happens, This is all the more remarkable considering that—as
our conclusions are robust to the incorporation of the noted earlier—no effort was made in either out-of-
statistical discrepancy into the household balance. We sample forecasting exercise to embellish the model
have elected to exclude it for ease of exposition. with other variables or to correct for auto correlation.

Issue No: 10/14 4 April 9, 2010


GS Global ECS US Research US Economics Analyst

Income Prospects Still Look Sluggish… Exhibit 6: Private Payrolls Remain on a


The main implication of the foregoing analysis is that “Jobless Recovery” Track
US households are probably not seeking to boost Percentage dif f erence f rom trough Percentage dif f erence f rom trough
saving further, at least in terms of our proposed 8 8
redefinition. In turn, this means that total outlays by 7
Recoveries Beginning In:
7
households—including those on residential investment Six Previous* ['54 - '82]
6 6
as well as the items covered in the conventional 1991
2001
measure of consumer spending—should grow roughly 5 5
2009**
in line with disposable income. If housing activity 4 4
remains stagnant, then there’s room for consumer 3 3
spending to outstrip disposable income modestly;
2 2
conversely, if housing activity picks up, then we
should look for an offset in consumer spending. 1 1

0 0
This assumes no change in our view that growth in
-1 -1
disposable income will remain sluggish, which so far Total Private Employment
looks appropriate. Over the next year (from the -2 -2
-6 -4 -2 0 +2 +4 +6 +8 +10 +12 +14 +16 +18
second quarter of 2010 through the first quarter of Months f rom End of Recession
2011), we expect disposable income to rise only about *Excludes the 1980 recession. **Assumes recession ended June 2009.
1½% in real terms. This is better than the ¾% gain of Source: Department of Labor.

the past year but hardly strong in absolute terms.


growth nonetheless. Over the past year, average
One reason for this is that consumers will see their tax hourly earnings of all private-sector workers have
bills rise over the next year. Whereas some taxpayers risen only 1.8%, barely enough to cover price
are now receiving federal stimulus in the form of increases. With unemployment still close to 10% and
larger refunds and/or lower final payments due to the broader “U6” measure of underemployment nearly
various provisions of ARRA, by this time next year 17%, further wage deceleration is quite likely. Under
others will be paying higher taxes as some of the tax these circumstances our expectations for growth in
cuts enacted in 2001 and 2003 are allowed to expire at wages and salaries—about 3% in nominal terms and
year-end 2010. We reckon that this drag on growth in 2% in real terms over the next four quarters—are
disposable income is worth about ¾ percentage point. more likely to be too high than too low. To the extent
they are, we have some room for upside surprises in
As for pre-tax income, the main reason for our caution other private sources of income—interest, dividends,
is that employment and wages—the two principal etc.—though they too have been anemic thus far.
ingredients of labor income—are both apt to be weak
over the next year. In the case of employment, we …But Consumption Could Continue to Surprise
expect payrolls to increase, but not nearly as fast as Currently our forecast anticipates a significant slowing
they have in most post World War II recoveries. So in real consumption, to a 1½% annualized growth rate
far, the data have been quite consistent with this view, during the second half of 2010. The latest data have
as shown in Exhibit 6 for private-sector payrolls.5 obviously posed a stiff challenge to that view, which
Although companies added 123,000 workers to their this analysis has sought to address.
payrolls in March, we estimate that much of this was a
make-up for poor weather in earlier months. In any With our new perspective on household saving, it is
case, the increase did little to alter the impression that much easier to see how spending could continue to
hiring is much closer to the “jobless recovery” track of outpace this expectation even though we see no reason
the last two cycles than the more vigorous ones of to upgrade our forecast for real disposable income
earlier days. Over the next year, we assume that growth. This is especially true if residential
private payrolls will continue to rise about 100,000 investment remains low, as seems likely. Moreover,
per month, or about 1% at an annual rate, with longer throughout the analysis, we have implicitly assumed
workweeks pushing total hours worked up 1½%. that household net worth stays roughly where it is
relative to disposable income. If instead asset values
Meanwhile, wages have weakened significantly in push net worth higher, our revised perspective on
recent months—hardly a surprise given the high level consumer saving opens up the possibility of a more
of unemployment but a depressant on labor income meaningful upgrade to our growth outlook, whereas
previously we would have seen such an increase as
5
We focus on private sector payrolls not only because merely rectifying an imbalance in consumer saving.
they are more indicative of companies’ behavior but
also to abstract from the distortion of the federal Ed McKelvey
government’s hiring of temporary Census workers.

Issue No: 10/14 5 April 9, 2010


GS Global ECS US Research US Economics Analyst

II. Forecast Highlights


1. Recovery is moderating in 2010. Fiscal stimulus members of the FOMC will be reluctant to raise the
(including its multiplier effects) and stabilization in funds rate target—even from its near-zero current
inventories accounted for all of the nearly 4% setting—until they see meaningful evidence of
annualized growth reported for the second half of sustained improvement in labor market conditions (a
2009. These supports will have dissipated by the substantial trend in payroll growth at a minimum, and
second half of 2010; meanwhile, the US economy preferably clear signs that unemployment is falling).
faces several structural headwinds. Among them: (a) This is especially true if our outlook for further
weakness in labor income, reflecting the impact of disinflation is right. Until that evidence starts to
high unemployment on wages and employers’ accumulate, we expect the FOMC’s strong
reluctance to rehire aggressively, (b) fiscal drag from commitment to low interest rates to remain intact and
the state and local sector, (c) large overhangs of we do not anticipate a major effort to drain reserves.
vacant homes and unused industrial capacity, which
limit the potential for major improvements in private- 5. Treasury yields should come down. The Treasury
sector investment, and (d) limited credit availability curve still builds in too much Fed tightening next year.
from a financial sector that is still on the mend. As a We expect 10-year note yields to move down into a
result, we expect growth to slow gradually to an 3¼% to 3½% range in coming months as growth in
annual rate of 1½% in the second half of 2010 before final demand remains slow and disinflation continues.
reaccelerating in 2011. We also remain convinced that the increase in
Treasury supply is less important for bond yields than
2. After a period of stability, the jobless rate is apt many investors believe, for two reasons. First,
to drift back up, to about 10¼% by early 2011. We increased saving by households and businesses creates
think the “jobless recovery” pattern of the 1991-92 potential demand for Treasury securities and reduces
and 2001-03 recoveries provides a better template for the competition for lenders’ funds. Second, the
corporate hiring decisions over the next year or two Treasury’s auction schedule for coupon securities is
than the more robust payroll rebounds of earlier now more than adequate to meet funding needs over
cycles. If our cautious view on the labor market is the next few years.
correct, then net hiring will not absorb all of the influx
into the labor force that is apt to occur over the next Upside Risks to Near-Term GDP Estimates
year and a half, in which case the cyclical peak in Economic data were relatively sparse this week, but
unemployment will again lag far behind the mid-2009 most reports were consistent with strong activity in
bottom in real GDP. We should note that these March. The nonmanufacturing ISM index rose to
comments abstract from the effects of federal hiring 55.4, with sharp gains in all major components except
for the decennial census, which will have noticeable supplier deliveries. Moreover, the recent consumer
effects on the payroll data in coming months. data—including Thursday’s same store sales reports
from major retailers—have been significantly stronger
3. Inflation is not a significant threat, at least for than expected, as discussed more fully in the center
the next few years. Although highly expansionary section of this report. As a result, the risks to our
fiscal and monetary policies have caused many market near-term estimates for real GDP growth—2%
participants to worry intermittently about inflation, (annualized) in the second quarter and 1½% in the
these concerns miss the point that the policies have second half—are on the upside. We will closely
been undertaken to combat a large gap between actual watch next week’s retail sales report as well as other
and potential output. Under any reasonable economic economic reports in coming weeks to decide what, if
scenario, this gap—estimated at 6.5% of GDP as of any changes, to our forecasts are needed.
year-end 2009 by the Congressional Budget Office—
will require years of above-trend growth to eliminate.
Accordingly, we expect the core consumer inflation
measures—already below the Federal Open Market
Committee’s (FOMC’s) long-range central tendency
ranges—to trend down further, falling below 1% later
this year.

4. Monetary tightening is highly unlikely before the


end of 2010, and we do not expect it in 2011 either.
The outlook for Fed policy hinges on what the
recovery—however strong it turns out to be—means
for the labor market and inflation. We think most

Issue No: 10/14 6 April 9, 2010


GS Global ECS US Research US Economics Analyst

THE US ECONOMIC AND FINANCIAL OUTLOOK


(% change on previous period, annualized, except where noted)
2009 2010 2011
2009 2010 2011 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
OUTPUT AND SPENDING
Real GDP 2.2 5.6 2.5 2.0 1.5 1.5 2.5 3.0
Year-to-year change -2.4 2.5 2.4 -2.6 0.1 2.4 3.1 2.9 1.9 1.9 2.1
Consumer Expenditure -0.6 1.9 1.4 2.8 1.6 3.5 1.5 1.0 1.0 1.5 1.5
Residential Fixed Investment -20.5 -3.7 10.9 18.9 3.8 -20.0 -2.5 5.0 7.5 10.0 15.0
Business Fixed Investment -17.8 -3.5 2.3 -5.9 5.3 -9.0 -1.5 -3.0 -1.0 2.5 5.0
Industrial Production, Mfg -11.3 4.6 4.7 8.4 5.5 5.5 5.0 4.5 4.0 4.5 5.0
INFLATION
Consumer Price Index 3.7 2.6 1.6 1.4 0.7 0.7 0.7 0.7
Year-to-year change -0.3 1.9 0.8 -1.6 1.5 2.4 2.3 1.6 1.1 0.9 0.7
Core Indexes (% chg, yr/yr)
CPI 1.7 0.8 0.1 1.5 1.7 1.3 0.9 0.7 0.3 0.3 0.1
PCE* 1.5 1.0 0.3 1.3 1.5 1.4 1.0 0.9 0.5 0.5 0.4
Unit Labor Costs (% chg, yr/yr) -1.7 -1.1 0.6 -2.7 -4.7 -3.3 -2.6 -0.2 1.6 1.1 0.7
LABOR MARKET
Unemployment Rate (%) 9.3 9.8 10.1 9.7 10.0 9.7 9.6 9.8 10.0 10.2 10.2
FINANCIAL SECTOR
Federal Funds** (%) 0.12 0.15 0.15 0.15 0.12 0.16 0.15 0.15 0.15 0.15 0.15
3-Month LIBOR (%) 0.25 0.30 0.50 0.30 0.25 0.27 0.30 0.30 0.30 0.30 0.35
Treasury Yield Curve** (%)
2-Year Note 0.87 0.90 2.00 0.96 0.87 0.96 0.75 0.75 0.90 1.00 1.25
5-Year Note 2.34 2.20 3.00 2.37 2.34 2.43 2.25 2.20 2.20 2.35 2.50
10-Year Note 3.59 3.25 4.00 3.40 3.59 3.73 3.50 3.25 3.25 3.50 3.50
Profits*** (% chg, yr/yr) -6.9 9.4 8.2 -9.7 22.8 17.5 17.5 5.0 0.0 0.0 2.5
_ _ _ _ _ _ _ _
Federal Budget (FY, $ bn) -1,414 -1,641 -1,396
FOREIGN SECTOR
Current Account (% of GDP) -2.9 -3.1 -2.4 -2.9 -3.2 -3.3 -3.2 -3.1 -2.9 -2.7 -2.5
Exchange Rates
Euro ($/€)** 1.46 1.35 1.35 1.46 1.46 1.36 1.35 1.35 1.35 1.35 1.35
Yen (¥/$)** 90 96 98 91 90 91 92 94 96 98 98
* PCE = Personal consumption expenditures. ** Denotes end of period. *** Profits are after taxes as reported in the national income
and product accounts (NIPA), adjusted to remove inventory profits and depreciation distortions.
NOTE: Published figures are in bold

We, Jan Hatzius, Ed McKelvey, Alec Phillips, Andrew Tilton and Sven Jari Stehn hereby certify that all of the views expressed in this report accurately reflect personal views, which have not been influenced by considerations
of the firm’s business or client relationships.

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Issue No: 10/14 7 April 9, 2010


US Calendar

Focus for the Week Ahead


Chairman Bernanke’s testimony to the Joint Economic Committee of Congress is likely to underscore the Fed’s
willingness to keep the federal funds rate near zero for an “extended period” (April 14).
Based on the sharp rebound in auto sales and strong same store sales results from major retailers, we estimate that
retail sales rose sharply in March (April 14).
Consumer prices are likely to show a moderate increase, despite continued small declines in rent and owners
equivalent rent (April 14).
Industrial production probably rebounded in March, based both on the increase in manufacturing hours worked
and the apparent setback in February as a consequence of the snowstorms during the month (April 15).
Housing starts probably rebounded in March as well, although the underlying trend remains mired at very low
levels (April 16).

Economic Releases and Other Events

Time Estimate
Date (EST) Indicator GS Consensus Last Report
Mon Apr 12 14:00 Federal Budget Balance (Mar) -$62.0bn -$80.0bn -$191.6bn
(per CBO)
Tue Apr 13 8:30 Trade Balance (Feb) -$40.0bn -$38.8bn -$37.3bn
8:30 Import & Export Prices (Mar) n.a. +0.9% -0.3%
10:45 Fed Gov Tarullo spks to Council of Institutional Investors
19:15 Richmond Fed Pres Lacker spks on US econ outlook; WV
Wed Apr 14 8:30 Consumer Price Index (Mar) +0.14% +0.1% Flat
Ex Food and Energy +0.13% +0.1% +0.1%
NSA Index 217.881 217.714 216.741
8:30 Retail Sales (Mar) +2.0% +1.1% +0.3%
Ex Autos +1.0% +0.5% +0.8%
9:30 Cleveland Fed Pres Pianalto spks at Minsky Conf; NYC
10:00 Business Inventories (Feb) n.a +0.3% Flat
10:00 Bernanke testifies before Joint Economic Committee; DC
13:00 Dallas Fed Pres Fisher spks at Minsky Conf; NYC
14:00 Fed “Beige Book”
19:00 NY Fed’s Sack spks on financial crisis; NYC
Thu Apr 15 8:30 Initial Jobless Claims n.a. 440,000 460,000
8:30 Continuing Claims n.a. 4,600,000 4,550,000
8:30 Empire Manufacturing Survey(Apr) n.a. +24.00 +22.86
9:00 Net Long-Term TIC Data (Feb) n.a. -$33.4bn
9:15 Industrial Production (Mar) +1.1% +0.7% +0.1%
9:15 Capacity Utilization (Mar) 73.6% 73.3% 72.7%
10:00 Philadelphia Fed Survey (Apr) 21.4 20.0 +18.9
10:30 Richmond Fed Pres Lacker spks at credit markets conf
13:00 Homebuilders’ Survey (Apr) n.a. 16 15
Fri Apr 16 8:30 Housing Starts (Mar) +5.0% +6.1% -5.9%
9:55 Reuters/U. Mich Consumer Sentiment—Prel (Apr) n.a. 75.0 73.6
13:00 KC Fed Pres Hoenig spks on finl crisis at Minsky Conf

Issue No: 10/14 8 April 9, 2010