Saturday, October 28, 2006

So-so GDP report for Q3, but not so bad

Despite the negative reaction, the Q3 GDP report was actually quite reasonable. Sure, it came in somewhat weaker than predicted (1.6% vs. 2.2%), but was still well within the range that could and should have been expected. The housing slowdown was bound the hit eventually, and now a big chunk of it is now behind us.

I should have published my own estimate, but I didn't because it was such a wide range as to look ridiculous. I had been prepared for a report as weak as 0.75% and as strong as 2.50%. The midpoint of that range was 1.625%, which would have been almost spot on.

As far as Q4, I suspect it will be another fairly weak quarter, but we could see the first hit of a rebound. I forecast a range of 0.25% to 3.25%, with a midpoint of 1.75%, which would be a very modest improvement, but nonetheless both believable and moving in the right direction.

The good news is that the weakness of this report takes some of the pressure off the Fed to hike rates any further and pushes longer-term interest rates downwards, helping to keep interest expenses down for both businesses and consumers.

Note that this was simply the "advance" report, made with incomplete and estimated data, with two revisions to follow as more data becomes available. GDP tends to be revised upwards.

-- Jack Krupansky

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