Thursday, November 23, 2006

Rising gasoline prices suggest renewed economic strength

Gasoline prices have been rising again over the past month, even as crude oil prices have been stuck in a relatively narrow trading range and crude oil inventory levels have been rising. This suggests that consumers are somewhat undeterred by the relatively high level of gasoline prices, further suggesting that the economy is stronger than many pundits are suggesting.

The economy is not "booming", but it is not "spiraling downwards into recession" either.

I continue to forecast annualized Q4 real GDP growth in a range of +0.25% to +3.25%, with a midpoint of 1.75%, which would be a very modest improvement over Q3, but nonetheless both believable and moving in the right direction. The forecasting difficulty here is that the housing market and commodities prices are being rather uneven, and could lead to either a lurch to the downside as well as a lurch to the upside. I like to think of my "goal" for Q4 to be GDP growth of +2.0%, but neither +0.25% nor +3.25% would greatly surprise me.

The recent rise in gasoline prices suggests that GDP growth in Q4 of +2.50% to +2.75% might be a reasonable estimate.

-- Jack Krupansky

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