Goldman Sachs economists Jan Hatzius and Zach Pandl made 8 economic predictions for 2016.
And some are pretty astounding.
For one, they predict the Federal Reserve to raise interest rates another four times. That’s double the consensus.
Also they make some other claims about market more nebulous to HousingWire readers. For example, they ask: “Will capex accelerate as the energy drag fades?”
If you want answers to that, see if you can access the whole report here.
For relevance to the mortgage finance industry, here are the salient questions and comments as follows.
Will homebuilding remain the fastest-growing sector?
Goldman Sachs answers: Yes.
"The Census Bureau projects that the country’s resident population will increase by about 2.6 million persons over the next year. With approximately 2.5 persons in the average US household, this translates into growth in the number of households—just from an expanding population—of about 1.0-1.1 million. Population aging may add another 100,000 households per year as older individuals are more likely to live independently, resulting in a baseline forecast for household formation of 1.1-1.2 million."
Aside from residential investment itself, we expect that 2016 will mark the end of the post-crisis housing market in several respects. We forecast that the rebound in house prices will slow, that single-family construction will account for a rising share of new housing starts, and that the homeownership rate will finally stabilize."
Hatzius and Pandl have several charts exemplifying their point, a huge reason to check out the forecast.
Will growth stay above trend?
"Yes. US growth momentum remains modestly above potential, with our Current Activity Indicator averaging 2.1% over the last three months and GDP growth for 2H 2015 currently tracking about 2.0%. We forecast that growth will improve only slightly from its current pace, averaging 2.25% next year. This is about ¼ point below consensus GDP projections for 2016, but above our forecast for potential growth of 1.75%."
Will the consumer stay strong?
"Yes, though not as strong as in 2015. The solid performance of consumer spending this year was a consequence of robust labor income growth and low inflation. A proxy for private nominal labor income in the monthly employment report—the product of private payrolls, average weekly hours and average hourly earnings—has increased at a 4-5% pace all year. We anticipate healthy nominal income growth next year as well, on a view that rising wages will offset much of the impact of slowing job gains."
But here’s the real shocker:
Will the FOMC deliver more than two hikes in 2016?
"Yes. The FOMC is sometimes criticized for using too much discretion, but in many respects the committee’s policy decisions in recent years can be understood in the context of a Taylor-like rule."
Looking ahead, a standard policy rule coupled with the Fed's economic projections (or our own) calls for a roughly 125bp increase in the funds rate by end-2016. While the FOMC's preference for a "gradual" path of hikes suggests that four is most likely, the economic case for the full 100bp implied by the Summary of Economic Projections is strong."