by Calculated Risk on 10/03/2008 07:40:00 PM

From Rex Nutting at MarketWatch: More severe recession now forecast by Goldman Sachs

The U.S. recession will be "significantly deeper" than they previously thought, Goldman Sachs economists predicted Friday in a research note. ... The unemployment rate will likely rise to 8% by the end of next year from 6.1% currently.

Goldman is now forecasting Q3 2008 real GDP growth at 0.0%, with PCE at minus 2.5% (annualized as reported by BEA). This is similar to my two month estimate for PCE, see Estimating PCE Growth for Q3 2008. Both PCE and investment will be negative in Q3, but net exports, private inventories and government spending will probably all show positive growth in Q3. So GDP may be close to zero.

A major change in the Goldman outlook is the increase in the unemployment rate to 8% in 2009 (their previous forecast was for unemployment reaching 7% in 2009).

One of the features of recent recessions is that the unemployment rate kept rising for 18 months to two years after the recession officially ended. This suggests that the peak unemployment rate (for this cycle) might not happen until 2011, even if the recession ends in late 2009 - scary. I'll have some more thoughts on unemployment soon.

Note that this is the headline unemployment number. Other measures of unemployment are much higher: See Krugman: The track record