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The Commerce Department released a revision of the third quarter GDP data this morning, saying it rose 3.9% versus an advanced estimate of 3.5% a few weeks ago. Those results combine with the previous quarter to give us a 4.25% increase for the last six months, which the Wall Street Journal notes is the best six month reading since 2003.
Of course, some of that is due to the dreary first quarter numbers. GDP was down 2.1% in Q1, and, as part of that was due to weather concerns, some snap back in Q2 was to be expected. Still, any quarter around 4% is to be celebrated and if another revision puts the 4 handle in front of Q3 growth it will be the first time in 11 years that we have seen that. (The last two times we had growth over 5% two consecutive quarters? 1999.)
What are the odds of three in a row? Not very good. Most of the models that try to predict current quarter GDP put fourth quarter figures around 2.3-2.5%. This revision will lift those estimates a bit. It’s also worth noting that those models have missed the high levels of the last two quarters consistently. But you’d have to go back to 1998 to find three quarters in a row where you had GDP growth of at least 3.9%, and between a weaker than expected employment report for October and slipping industrial production, it would be foolish to bet on making 4% again.
The impact on monetary policy is likely unchanged. Markets anticipate that the Fed’s zero interest rate policy ends between late spring/early summer, and there are no signs here of them either speeding up or slowing down that ramp to a rate hike. he inflation hawks will have their eyes on this morning’s report on OPEC perhaps firming up oil prices, while the doves will point to poor business sentiment as a reason to keep the punch bowl full of liquidity.
The wise bet is that they remain on the present course. These aren’t happy days, but the old line that “bull markets climb a wall of worry” may also apply to the U.S. economy today.Published in