DAVID WOO: The Economy In March Will Be 'Decisively Slower' And There's Already One Worrisome Sign

DAVID WOO: The Economy In March Will Be 'Decisively Slower' And There's Already One Worrisome Sign

Goldman Sachs sees a "tantalizing prospect" that the US economy may already be over the hump and that growth will accelerate this year, proving wrong the naysayers who said that the end of the payroll tax holiday and the sequestration would be a blow to the recovery.

We thought this was interesting, because back in early February, BofA strategist for FX and rates David Woo said that the US economy was about to see the "moment of truth." At the time he reckoned that the data over the coming weeks would show whether the US recovery would survive or not.

So we asked Woo what he made of the latest good data that has the market and folks like Goldman Sachs so excited.

The Feb data have been impressive but I still think March data will be decisively slower. The Rasmussen daily consumer confidence is down nearly 10 points from mid-Feb and the impact of the sequester will start to show up in the next 2-3 weeks (CBO is forecasting 750K job looses this year from sequester implementation).

are grateful for our preps because we are using them right now.”

I, too, have had to use some of them on occasion. One of my artist friends made an engraved plate to put on the front of my pantry and it is now referred to as the “Obama Closet”.

Just for grins I had written the price of some of the things I bought that have been part of my Obama Closet the longest and compared them to the current prices. Found that not only has the cost increased by 15-20%, but the replacements are all slightly smaller in size or the same size package with less inside.

“How could increasing the budget 2% result in 750k jobs lost???”

It depends on where the budget will be spent. If the extra 2% goes into entitlement spending then there won’t be many job cuts. But the military is 20% of GDP. The military is absorbing half of the budget hit. The Pentagon announced it will furlough or lay off 800k people, mostly contractors.

Having been a military program manager I can tell you that even a small funding perturbation can lead to cascading impacts that range far and wide. Suppose your program has a burn rate (the rate it uses funds per month) of $2 million. The customer (Navy, AF, NSA, etc.) tells you to lower the burn rate to $1.5 million per month. You must stretch out the schedule. You no longer have enough funds to keep vital people full time. They either get laid off, move to other jobs or leave the company. Subcontractors may go out of business because they ramped up for your business or they made commitments and now won’t be able to pay them. Then there are penalties because of contract clauses that further impact your budget well beyond a simple slow-down in funding. These take even more funds from the project.

In the end, these slow-downs always end up costing much more than they save.

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