Q4 GDP expected to be +2.6%

Macroeconomic Advisers, who provides the monthly GDP data that the NBER uses for recession dating, is forecasting Q4 annualized real GDP growth of +2.6% after our recent Q3 growth of +2.4%.

 

So, no sign of a new recession yet. Nonetheless, ECRI is still sticking with their "tipping into a recession" call.

 

Who knows, maybe a recession will pop up sometime in 2012, but it certainly doesn't look like a recession either right now or in the next two months.

 

That said, it is very possible the we are seeing a short little mini-boom with two quarters of modest growth to be followed with a slowdown. Certainly there are plenty of areas of potential future weakness out there, including weakness in Europe, slowing pace of hiring in the private sector, ongoing job and spending reductions at the state and local government levels, and a high probability of a reduction in federal government spending and jobs as well. On the plus side, there is plenty of money out there looking for investment opportunities, but on the down side, there is a dearth of attractive investment opportunities, which means a dearth of job and income-producing opportunities for workers. Kind of does sound like a surefire recipe for a recession.

 

Maybe these few months are the sunny days before the storm that always fail to predict the severity of the storm. That could very well be.

 

One of the biggest wildcards out there is that with all the angst about Europe, a lot of U.S. investor money is coming out of euro-denominated investments and back to the U.S. Granted, we have no shortage of money in the U.S. even now, but a lot more money can only further assure that plenty of money will be available to fuel virtually every growth opportunity, regardless of how small or how specialized a niche.

 

It is also worth noting that we just inked several new free trade agreements recently, which should also give us a small amount of additional lift.

 

At least superficially, I do have to go with ECRI forecasting an upcoming recession, but the timing and severity remain to be seen. A slowdown, yes, but the severity depends on the policy response and in an election year the Federal Reserve won't want to be seen as acting in a way to promote a recession. Congress may not act due to gridlock, but additional short-term fiscal stimulus is the last thing we need when the goal is long-term sustainable growth.

-- Jack Krupansky