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Why Goldman Sachs is bullish about the $900B stimulus bill

On Monday, Goldman’s chief economist Jan Hatzius lifted his first quarter U.S. GDP forecast to 5% from 3% in large part from the effects of new stimulus checks to U.S. households. Yahoo Finance’s Brian Sozzi weighs in.

Video Transcript

[MUSIC PLAYING]

JULIE: As we know, after sort of toying with Congress and saying a last-minute protest to the stimulus bill, President Donald Trump did end up with an even more last-minute signing of the bill. And that's now leading some economists to change their estimates. Even though we did see unemployment benefits, the extra unemployment benefits expire for some folks on the 26th. Brian Sozzi, the folks over at Goldman Sachs are now sort of rejiggering their numbers based on what's happened. What are they saying?

BRIAN SOZZI: Right, Julie. Goldman is the first one out of the gate on the street that I have seen. So Goldman-- Goldman's economist Jan Hatzius is raising his first quarter GDP estimate to 5% from 3%. Why? Because he did not include stimulus checks inside of his estimates-- a little odd to me.

Nonetheless, that's what he is doing this morning. He still expects a sequential improvement as they go throughout the year in terms of US GDP. And now for the full year, they're looking for 5.8% growth. That's up from 5.3% previously.

But very important here, and this is my take-- Goldman noting they see equal distribution of consumer spending after these stimulus checks. And guys, I think that's not the message that is being priced into the market. The market is pricing in, I think, you're seeing going to see a consumer spending boom in the first half of next year as people get these checks. And that's just not the reality. Households continue to struggle mightily.

And most of the economists that we talk to, outside the folks at Goldman, they think consumers will get those checks and just spend on basic necessities. People need food. They're not going out to buy an $80 pair of Lululemon pants. That's just not how this is going to go. And I think at some point, the market will come to realize this, and you could see that correction.

MYLES UDLAND: Well, I mean, I would add that a lot of Americans can't buy food, so being able to buy food is actually a huge help to a lot of people. But you know, Sozzi, to go back to something that the Barry Knapp told us earlier in the program-- he called it the Goldman thesis, which is, stimulus comes through, all the benefits accrue to consumers, and we don't get any bad, you know, negative effects, right? And I guess inflation is one everybody's worried about, or higher taxes really eating into kind of the fiscal program that it seems that we're endeavoring on.

And I would just say, look, all the Wall Street economists, most of them have the same background. They went to the same handful of colleges. A lot of them worked at the Federal Reserve. But the outline that Goldman has here is based in what has happened in the economy. We gave people a lot of money in the spring. Inflation did not materialize. The economy materially outperformed expectations.

And so that's essentially-- at least my read on this-- how Goldman sees things going in the year ahead. And I know everyone's very worried about inflation because it's sort of the framework against which most economists came of age. But it's now been 30 years more since that was a material concern. And I mean, I know that things were bad in the 1980s. But the more that people get hung up on inflationary environments being a material risk, I think the more likely it is that we're not talking about what fiscal policy actually does, which right now is shore up consumer balance sheets and help the economy, again, a consumer-based economy, outperform pretty downbeat expectations.

BRIAN SOZZI: And that's a good point, Myles, you know? It's hard to see-- it's going to be hard to get inflation if folks, struggling households, they just take that check and they put it in their savings account. And who is to say that they won't do that?

JULIE: Well, that's what they have been doing, right, or at least part of that money. A little taste of the discussion that went on at the Udland family Christmas table, I think, over the weekend. And by the way, Sozzi, try $125 for those Lulu pants, unless they're maybe on sale.