Goldman Sachs versus Wenzel on the Second Half of 2011

In a research note released today, Goldman Sachs economist Andrew Tilton listed five hopeful signs for the 2nd half of 2011 (My comments are in italics-RW):

First, commodity prices have eased. Using a standard seasonal adjustment procedure, retail gasoline prices are back to end-2010 levels. This will change. Commodity prices will climb dramatically in the second half and will be joined by a roaring increase
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Second, despite the increase in interest rates this week, financial conditions are easier than at any point in 2010. Bank lending standards remain tight, but these too are easing on the margin. Interest rates have likely already started a multi-year climb. The Chinese have stopped buying, the Social Security trust which at one time bought as much as 25% of Treasury offerings has turned into a net seller AND a price inflation premium will start to expand as a part of nominal interest rates.
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Third, the decline in house prices may be abating. Only because the Fed is pumping money.
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Fourth, vehicle production has rebounded following large disruptions due to the Japanese earthquake and tsunami. Not a major factor when you look at the entire economy.
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Fifth, labor market indicators seem to have stabilized after some worrying readings in late April and May, although we’ll have to wait until next Friday’s June employment report for a more definitive assessment. ... We expect an increase of 125,000 payroll jobs, with the unemployment rate dropping back to 9.0%. Wage inflation will start to spread beyond Silicon Valley, resulting in more people taking the increase in nominal wages.

Bottom line: Price inflation and interest rates will both be higher by the end of the year--much higher.

(htCalculatedRisk)