In this timely online newsletter, Market Insights provides economic commentaries and retirement/financial planning news updates to help plan participants make informed retirement planning decisions.
Economic surprises help wind down 2011
Final revisions to Q3 U.S. GDP (final until we get annual revisions next July) showed a 1.8% annualized growth rate down from last month's estimate of 2.0%.
Assessing our expectations
> From a scenario perspective, the final GDP numbers come very close to our High Probability figure of 1.9%, though weaker than our baseline estimate of 2.4%.
> Final personal consumption came in weaker than our baseline given the latest downward revisions to medical services expenditures.
> The mix was volatile as usual outside of services, with durable goods exceeding our expectations while nondurables came in weaker.
> Residential investment also came in at a slight positive as compared to our slight negative figure.
> Business investment, which is where we differed with consensus, significantly came in even stronger than our 12.4% growth at 15.7%.
> Corporate profits after adjustments grew $41.6 billion, in line with our estimates.
> Net exports surprised us to the upside as exports came in slightly below our forecasts, while imports surprised us to the downside (we believe this will reverse in Q4).
> Inventory accumulations were, of course, the big surprise at minus $41.1 against our estimate of positive $33.2.
> Government also came in stronger than our forecast of -1.0% growth at -0.1%, almost all attributable to a stronger defense line-item than we anticipated.
> Inflation components came in line to slightly higher than our forecast.
Heading into Q4 we believe momentum is stronger than consensus believes. Even though we lowered our 3.3% initial estimate down to 3.0% recently, it remains above consensus though forecasts are being revised upwards almost daily. MacroAdvisers at present is tracking growth closer to 3.8%. For Q1 2012 we are currently estimating 2.1%-2.4% given the impact of our Euro-zone recession forecast, while for 2012 we forecast growth to reach 2.5% (above the consensus of 2.1%). Our forecasts assume an extension of the payroll tax breaks as well as an extension of unemployment benefits. Downside risks to our domestic demand forecasts would/could materialize if Congress failed to act within the next month or so.
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