Surveillance: Goldman Cuts U.S. Growth View

is with Golden Sex. Yeah, I got eight ways to go, but I want to fold it into a slowdown in the fiscal umph to America. Did you adjust your g d P down because the fiscal party is over, The fiscal punch bowl is being taken away. That's certainly the reason why we think the economy is going to slow quite a bit in two thousand and twenty two. We have it going to just under two percent by the

fourth quarter of next year. In the near term, I think there are still some reasons to expect stronger growth. The trend is down, but I don't think it's going to be a straight great line. Will still get some boost from the receding delta. Wave, consumers have a lot of pent up savings, and I think the inventory cycle is also going to boost growth. But these are all relatively short term, right and going forward, you know, further on, I do think growth is going to be significantly saw.

Whatever the flavor of inflation here, what does it do to the wage in the inflation adjusted wage I think that really depends on whether you look at the top end of the of the wage distribution or the bottom end. I think at the bottom end, we've seen a sharp acceleration in wage growth we think to about six percent if we just for all the changes in composition, and that's obviously, you know, the strongest we've had in many years.

I do think that the expanded unemployment benefits were a big driver of that, and now that those have ended, I think we'll see a deceleration there. But in the middle and upper end of the income distribution will probably see continued gradual wage acceleration as the labor market titans and I still think it is it is tightening, so overall we have wages going sort of roughly sideways in

the three and a half to four percent range. That's our current estimate of the underlying pace and then the real wage you know, really is going to depend on what happens to inflation. In the short term, there is no real wage growth. In fact, real wages probably declining slightly because inflation is is higher than that. Longer term, as you go into two thousand and twenty two, I think we'll again have real wage gains. So, yeah, just

help we understand next year. Full pus in to the baseline for the year, but I'm more interested in the back half. Two Are you saying one point five to GDP growth by the time we get to the back end? That's right. The four percent is in part being driven by the strength in the later part of two thousand and twenty one that has a statistical carry over into the year. But as you go through the year and especially into the back half, we have it at three percent in Q three and then one seventy five in

Q four. So she's definitely a trend towards slowdown, consistent with some of these temporary positives petering out as you go through the year. Yeah, and how do you think

the Federal Reserve will respond to them? Will they be looking at the cumulative games that you've pointed out, Will still be decent in the labor market or will they be worried about growth slow and bank below two Well, so a near term of course, you know, tapering is very likely to be announced at the next meeting that's going to take until the middle of two thousand and twenty two, and then I think the question is where is growth whereas the labor market, whereas inflation under our forecast,

growth is much more moderate and inflation is on its way back down to something like two percent on core PC. In that environment, I don't think they're going to move directly to rate hikes, and we have the hikes not starting until two thousand and twenty three. But of course it's really going to depend on the on the data and how they compare with the criteria that the Committee

has laid out. They've been very clear about that. Well, tapering isn't going to help much in reducing the supply side in facial inflationary pressures that are out there, you could argue there's limited options for the FED to do

anything about that. Are the ripple effects though, of that being more persistent than maybe expected, being underestimated, the ripple effects from the supply side shortages, it's be taking longer and that I think that's you know, pretty clear in the inflation numbers in you know, I think a good indicator. Obviously only one industry is used cars, where auction prices again rose in September after several months of the clients. So I do think in the in the next several

months will still have a significant inflation issue. We think four pc inflation by the end of the year is at four and a quarter percent, up from three point six percent at the moment. As you go into two thousand and twenty two, though, slower growth in demand and probably also a redirection to some degree of that demand from the good sector. Right now, it's very concentrated in the good sector. It's probably going to normalize somewhat and some of it is going to move into services, you know.

I think that is going to result in UH relaxation basically of these of these supply bottlenecks and declining books prices. But we're not yet in terms of supply issues. We also have a real energy crunch out there in the world that is driven crude oil prices to now eighty two dollars a barrel on w T I what is the real economic impact of crude north of AD. I think again it adds to the near charm stackflation narrative. It's bad for growth, but you know, at the same

time boots inflation mainly headline there. There's not a major impact on the core numbers. They are the high numbers. They are really driven by other factors. But it's all pointing in the in the same direction in terms of way on growth and making making inflation higher. Yeah, long ago and far away, a younger hotsis defined the housing market in America as we saw housing prices collapse. Let's go to your Brookings effort here the balance sheet effects

of the home price downturn. We need a rewrite sheet effects of the home price upturn. What do you make of this boom, Yahn? What does it mean for our viewers and listeners? Well, I think it is one of the items on the strong side of the ledger and one reason I think why we are getting a good amount of balance sheet support that is upsetting to some

degree the negative fiscal impulse. But I think ultimately the negative fiscal impulse is probably going to be larger, in part because this housing boom underlike the pre two thousand and seven or two thousand and eight housing boom doesn't feature the same amount of mortgage equity withdrawal, you know, wholem equity, borrowing, cash out refis, etcetera. That was really a particular sort of way to turbo charge the housing

wealth effect back then. We're not seeing that to the integrat degree now, so I also think the consumption effect isn't going to be as large. Yeah, just quickly, a final question, what do you make of this stag inflation conversation that's taking place right now? What are you when

your team tan of clients about it? But I think in the near German's real if you're just defined stagflation as you know, deceleration and growth from the extremely rapid pace that we had a couple of quarters a goal and much higher inflation than we've had in several decades. I mean, it's just a description of the fact. The question is, I think what happens as you go into two thousand twenty two, and I think that's going to be a more traditional, you know, sort of cyclical slowdown

narrative also with the clients and inflation. But we're not there yet, and we're probably not going to be there for at least a few months longer. You just quickly then, just looking at the FED forecast real GDP next year, there are at three point eight year of four This is for twenty two core pc. There are two point three. Just you and just quickly confirmed. What are you at

for two for on core pc? So on a for corpc by the end of the year, we're a so a little bit below the FEDS forecast for GDP growth. We're at three point three percent if you look at it on the fourth quarter to the fourth quarter basis. It's the way the FED looks at it. Yeah, and thank you, sir. I appreciate that clarification got my sex chief economist on the path forward. Ye, thank you very much.

So picture the scene you have won the Nobel Prize in Economics, but you don't know you've won the Nobel Prize in economics, and Tom the phone rings you live in America on the West coast maybe, and your phonus room. Do you pick up the phone? Well, I don't know if you pick up the phone, but that is the great, great tradition and maybe you miss it a few times. Is Guido im Men's did this morning of the three

winners here. This is a gentleman who did the hard work the math out of Brown University in the House of Tony Land Gast Grido Evans has been definitive in econometrics. Think Claude Granger and Robert Angel of San Diego a number of years ago. Grado, this is an award for labor and the choices of society makes in trying to figure out jobs and wages. Discreat choice is the hallmark of your work. What are the modern choices we're making in labor in two thousand twenty one? Well, thanks thanks

for having me say. I mean, first all, it's just been great shining this with with josh Anglis and David Carr because they've they've been such role models for me that they've been so fun to to work with and have his colleagues, and in addition kind of Alan Couger who's also worked in this this area, and all three of them kind of have been working on these really important subscentive questions and sacked and having been their colleagues, then that motivated me to look at a lot of

the methodological issues related to their questions. To make their arms is more convincing and more credible and hopefully more useful for policymakers. I look, Guido at the present work here in the hallmark of this is to take David Carter and Ellen Krueger over to what Angerston in Ben's did an econometrics and math, over to the modern technology of Amazon, target and the rest getting sixteen seventeen eighteen

dollars an hour because they can't find labor. From where you sit, what does the marginal wage due to all of America with Amazon going out looking for the marginal employee. But at the moment, I think it's all very much influx after the pandemics, of course, has had great effects on on inequality and it's it's had such an equal impact on different parts of the of the labor market, and so I think Ellen and David's work is still extremely relevant there and I think the current administration has

probably taken up very seriously. Yeah, Guido, obviously your work focused on natural experiments in the actual study of empirical data. As we talk about monetary policy and a federal reserve that wants to operate on actual, realized data versus expectations, is that something that can only really be done with

hindsight bias. No, I think a lot of these methods are very relevant for for informing future policies, and a lot of the datual experiment literature has also made roads into macroeconomics and is incredibly interesting work going on there that early on the Christian David Roman is very interesting work there nowadays, uh, I mean Necamora and Don Science and doing very interesting work trying to also tease out correlation and causality in macroeconomic settings, where these classes are

even more challenging than in the settings with my code data that David, Josh and I have typically looked at Professor Emmons, what is so important here? And I think we'll do just one final questionnaire as you go to your massive media day and celebration of this award, And the final question is we have a certitude about data. It's in our economics, it's in our academics, it's in Wall Street, it's in everything to do with the financial media.

You grew up in what I'm gonna call the Baysie in the house, which is real doubt over ninety and certitude. Are we too confident about our data that we're trying to guess the future on I think I think that that's a super interesting question, and that's that's something that

that's occupy a lot of my of my thinking. We're trying to I think traditionally we've we've certainly aired on the side of putting too much faith in the in the models, and so a lot of the methods have been developing have been trying to get away from that and trying to make these methods more robust, but as as ongoing challenges and in doing so, professor, before you run, did you miss the phone call? What time did they call? I miss I missed the first phone call. I got

the second one. Uh so, I was been a long day before for us. I was. I was sleeping well and uh I wasn't expecting this as it's often the way, sir, as it's often the white They missed the phone call. Queen Emmant s, thank you so and congratulations so much. E tunny walk about Prize for Economics winner and Stanford University Economics professor, that's home. They always missed the code. That's what I find always funny about this. They always

missed the code. Right now and we are well timed to speak to one of our great labor economy, and she is inquisitive, to say the least out of the Michigan Shop Claudius sam Joe's joins us always controversial, always opinionated, and knowing that it is a day of celebration in her world, which is labor economics, Claudia, and we want

to stay in theme. But if I look at Guido in Ben's, if I look at Joshua Angerston, particularly if I look at David Card and Alan Krueger, um, I just have to say, this is a day of the minimum wage. Fold their work into the observation. Amazon has to give out eighteen dollars an hour to find someone today. All right, So for these Nobel Prize winners today, you know, congratulations,

uh and I agree. There you can go back to the really path breaking work that David Card and Alan Krueger did in the early nine nineties, and it was very careful, empirical work. Go out in the world and see what is happening in states that raise minimum wage and states that don't. Now, a lot of happened in terms of research that since then, but they at least raise the question that you raise wages and you don't lose out on business. It's not bad for the company.

Normally in economics we'd say this, this is gonna be a problem for employers, it's gonna be a problem for businesses. And they found in one case, and like I said, there's a lot of literature, there's a lot of debate after that about the effects of minimum wage, but it really opened up a conversation. Let's get past our models and let's go see what's happening to all of this, and the the incredibly acute mathematic tics of Angers and

Emmons as well also working. I should point out with Alan Krueger Claudia some what this comes down to is the reality right now. And I have a question on local economics, think David blanche Flower at Dartmouth is Amazon target cost go? Are they the marginal price determinant of the wage in local economies? Well, this is a trend we have seen for decades. So this goes way beyond COVID in that you have local labor markets where there is a dominant employer. Amazon's a big company in terms

of customers buying things. Amazon can be a big employer if you are in an area that has one of the warehouses. I grew up in Indiana, close to an inter state. When I go home, there's all kinds of warehouses in place now or being built. They tend to pay above the local wage, but then they have a lot of bargaining power over the workers, and and that can lead to real problems, not just in terms of wages,

but working conditions. Right Like, we know from a lot of people that have worked in these plans or these warehouses, it's not an easy job. And John, you wonder if this is the new form of unionization almost the dominance of these companies setting the marginal wage. Let's build on some of this time, the contribution of Card and Kruger to the real world, the real economy for good, Claudia, a quote of yours. I want economic policy to be good, like economists to do good in the world. Larry, you're

referring to Larry Summers. Here is something of it. I don't now. I see him as a roadblock to achieving that girl that was in an interview with Political magazine. Why do you think that, Claudia, Right, Well, this is this really is not about Larry. It's it's about the change that needs to happen. In economics. I think if of a generation of economists, particular in macroeconomics, there is a I have a mental model. I have a way the world should work, and I'm going to keep going

back to it. Larry did an interview with Noah Smith, and he was really clear, I don't have a model. He has an intuition and that comes from years of experience watching the economy. But the real contribution of the Nobel Prize winners today is to say, let's step back, let's go get the data, let's look at the world, and not do introspection. It is too hard and can really lead to a stray if you're doing that from

the Ivory Towers in Cambridge, Massachusetts. So that's really and Larry just happens to be a flag bearer of the old guard. And I just particularly in this crisis, particularly in the way that different groups of people, marginalized workers, the ones who end up working at Amazon, they need economists to be out in the world looking at the data and not sitting back and using past experience, using intuition to make decisions. So that that's what that concerned

that I'm raising is about what your advice. Clodia then to a students of economics right now who are just starting gout and be much bigger question I think for policy Mike, is that the Federals who have been conditioned by everything you just said. Mm hmm. Yeah. So economics is all around us, right, It's not just listening to what the Fed is gonna do, what the markets are doing. A really big debate that's happening right now that is absolutely using the tools of the prize winners today are

the debates about what is causing the labor shortage. How important was unemployment insurance in that holding back of workers. There's a lot of debate on Friday about not seeing big numbers now that it are in early September, those benefits expired and they're absolutely using those methods because we saw different states roll off their benefits at different points this summer. So these tools, they've been refined since they've

been developed. But like, but economists are out there trying to answer the questions, the questions about people about labor markets. The policymakers need to know so that they can make big decisions. Well, let's talk about the questions in the labor market. Participation has remained stubbornly low. We saw more evidence of that on Friday. Is that again transitory as we talk about so many of the shortages out there

are or is that something structural? Well I said throughout this COVID is the enemy of everything that is happening in our world, and it is absolutely the case in labor markets. Now it's not the only factor, I think in the labor markets, and we actually see this a lot of places. What whatever problems we were living with before COVID, those became so much worse. Right, if you think about before COVID, there were a lot of parents

that struggled to get childcare. It was often extremely unaffordable in areas of the country like where I live outside of Washington, d C. And then we have COVID and it becomes harder, it's less reliable, and our parents are concerned about it not being safe, and so that decision that was always hard. Do you have like the one wage earner off of the mother who would make less wages, do you have her stay at home or do she

go back to work? Right like, that got so much worse, and we saw a lot of parents drop out of the labor force early on, and one of the disappointments on Friday was it's fall. Schools are reopening. It's a little rocky because people kids get sent home if a COVID exposure. Women didn't come back last month. September were

supposed to be one of the big ones. So that's just one example, Claudia, is what you're saying helping make the case for some of the social policies on the table in terms of longer term economic spending in Congress. Childclaire is included in that right. So, I think we're at the point now where we we have seen this in so many places, the structural problems the labor market in general, low wage workers had a lot of problems in terms of what they were able to bargain for before,

so let's fix those. This crisis has amplified and made it so obvious that the inequalities, the inequities and our economy are they're holding us all back. Now. Congress has not done big future looking long term investments in the country for a long time, and frankly, it is absolutely frustrating to see the whole debate about how many trillion dollars we have a lot to do in this country and sadly, I think Congress doesn't have a lot of

crap practice recently and getting it done. Claudia, we've gotta leave it that we appreciate your time this morning. We're ready to thank you very much for being with this, Clodia Sanda of the Family Institute, and a whole wealth of experience, Tom Back of the Federal Serve as well on the COVID On the vaccine, I don't know where I said things are getting better, but where I sait maybe isn't the rest of America or the rest of

the world. It is a world of vaccine protest, whether in Rome this weekend and thousands of Melbourne, Australia again and others around the world, and the oddity in America of possible vaccine protests by businesses and by their employees. Joshua Scharstein joins them. JOHNS. Hopkins, Bloomberg School of Public Health. Joshua, are you surprised by vaccine protest? I'm not not surprised, given just how polarized the whole pandemic has been over

the last year and a half. Um but I think we have to realize that when there are a lot of cases people see the problem right in front of them, and they're more likely to go get vaccinated when they're not a lot of cases people wonder, well, you know, do I need to get vaccinated? And then there's so much misinformation out there that keeps him from getting vaccinated.

So as we look to the future and the good news that it looks like on the you know, the right side of the delta waves coming down, things look a little bit um more optimistic going into the fall and winter. Um. But also it may be that people will feel less likely to be vaccinated because of that.

So I think we're going to be seeing this and it might be industry by industry, particularly for industries where workers might leave the general council or the chief medical officer of a given fortune five hundred company dials Sharfstein and says what should we do? How should business respond to vaccine protest? Yeah, I've been on the phone with some businesses like that, some organizations, and it's really important to focus on countering misinformation. There is so much misinformation.

I've done some you know, big kind of town halls with employees and the questions come from truly out of left field, um, with sometimes just almost snow basis in reality whatsoever. And you know, I think, um, one of the insights I've learned from some experts and misinformation is that people like me, we tend to think we explain it once. People should understand meanwhile, the misinformation is coming

to people morning, noon, and night. So it's really important for employers to constantly be communicating different ways, different messengers, you know, UM, people that their employees can relate to and be relentless because the misinformation is relentless. Well, this is no longer just about adults. Dr Sharfsty And obviously we're awaiting an FDA decision on the vaccine for children

that could come later this month. CBS, and you have put out a poll over the weekend that even among vaccinated parents, only sixty one percent of them are willing to have their children get a shot. Do you understand that hesitation. I think that it is a little premature to be making too much of those polls because we really haven't had a full airing of the data, full discussion with the advisory committee. You know, all we really have is that acclaimed by the company at this point.

So I think parents are are right to be saying Okay, let's take it one step at a time now, Just like with the adult vaccine, I think there'll be some people who jump out and want to vaccinate their kids early, and others maybe a little bit more in the wait

and see camp. It's going to be really important for the FDA and CDC not just to make a decision based on the evidence that they have now, but to explain how they're going to get more evidence, how they're going to be able to share that evidence so that people can see what's happening and ideally build confidence with

more and more people over time. Is her immunity still an achievable goal, Well, you know, to the extent that her immunity means there's there's not going to be a lot of COVID around, I think we're going to hopefully get there unless there's a big mutation in the virus. But her immunity doesn't mean no virus, and it doesn't mean no risk, and it doesn't mean there couldn't be outbreaks here and there, particularly where their pockets of people

who are unvaccinated. Um So I think, you know, the more likely scenario is that we will be living with the virus and hopefully we'll be living with a low level of the virus rather than a medium level of the virus. And tell me if you notice that the messaging has changed on TV. The commercials are less about get a vaccine and much more about mental health. Did

you notice that in the last week or so. I can't think of a single vaccine commercial that I've seen from New York State over the past week or so on TV. I think there are subtle shifts here. Part of it is the impatience of people, and part of it is legitimate protest. I mean, what's fascinating to me is how will this a man when finally we'd get five year olds to eleven year olds? Uh? You know, you know, John, I have to admit a seven year old descendant on the house this weekend. It was an

odd and beautiful thing. We tried to trade the two dogs for the seven year old, but that didn't work. I didn't imagine that tim work. And you know, to be honest, John is an idiot. I was confronted with what others like Mr Bramo, it's face each and every day. Let me unvaccinated doctor, if you notice them, I'm noticing something or nothing at all. I see a lot more now about mental health than I do about get a vaccine. Um, I have not particularly noticed that, but I'm not maybe

watching TV in New York. I would say, though mental health is extremely important, and you know, this pandemic has affected people in so many different ways and so difficult in so many different ways. It's really important to pay attention to that too. But you know, a vaccine is a path to fewer cases, which hopefully will you know, help everyone's mental health. Doctor. Thank you, doctor Joshua Schafstein. There of Johns Hopkins to Bloomberg School a public health

by staying. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern. I'm Bloomberg Radio and I'm Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg