No Recession, At Least For Now
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No Recession, At Least For Now

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Later this month, the government will release the advance estimate of 3Q11 GDP growth. There are uncertainties in that estimate – inventories and foreign trade make up a relatively small part of ...

Later this month, the government will release the advance estimate of 3Q11 GDP growth. There are uncertainties in that estimate – inventories and foreign trade make up a relatively small part of the economy, but account for much of the quarterly variation in GDP growth. We already have a good idea regarding the “meat and potatoes” of that report. Consumer spending and business fixed investment expanded further in the third quarter, suggesting no recession in the near term. However, the economic outlook for 2012 is a lot less clear.

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    No Recession, At Least For Now No Recession, At Least For Now Document Transcript

    • 6363 Woodway Dr Suite 870 Houston, TX 77057 Phone: 713-244-3030 Fax: 713-513-5669 Securities are offered through RAYMOND JAMES FINANCIAL SERVICES, INC. Member FINRA / SIPC Green Financial Group An Independent FirmWeekly Commentary by Dr. Scott BrownNo Recession, At Least For NowOctober 17 – October 21, 2011Later this month, the government will release the advance estimate of 3Q11 GDP growth. There areuncertainties in that estimate – inventories and foreign trade make up a relatively small part of the economy,but account for much of the quarterly variation in GDP growth. We already have a good idea regarding the“meat and potatoes” of that report. Consumer spending and business fixed investment expanded further inthe third quarter, suggesting no recession in the near term. However, the economic outlook for 2012 is a lotless clear.
    • The retail sales figures for September were stronger than expected, while figures for July and August wererevised higher, spending economists back to their computers to re-calculate forecasts of 3Q11 GDP growth(now seen closer to 2% than to 1%). Consumer spending accounts for 70% of the overall economy. Therecent data continue to suggest that the recovery in spending remains on track, although gradual and with alot of ground to make up.It seems likely that higher gasoline prices were the major factor slowing consumer spending in the late springand early summer. Disposable income improved considerably in the first half of the year, boosted by thereduction in payroll taxes at the beginning of the year. However, disposable income rose much less afteradjusting for inflation. That weakness in real income growth meant little fuel for consumer spending growth
    • into the early summer. Gasoline prices have come down, but not by a lot (compared to where they were ayear ago). Gasoline prices will be a major factor in the consumer outlook for early 2012.The bigger uncertainty right now is fiscal policy. The cut in payroll taxes, agreed to last December, lasts untilthe end of this year. The president has proposed an extension and expansion of payroll tax reductions for2012 as part of his jobs package. That proposal appears to be dying on Capitol Hill. However, some portionsare likely to survive. Next year is, after all, an election year, and Congress risks the wrath of the voting publicif no action is taken on jobs. Still, that leaves us with a key uncertainty for the consumer outlook in 2012.Corporate profits, a key driver of capital spending, have remained strong, suggesting that business fixedinvestment will continue to expand into early 2012. Business spending on equipment and software hasrecovered from the downturn and appears to have risen further in 3Q11.Recent data have helped reduce fears that the U.S. economy is already in a recession. However, there is stilla lot of uncertainty about next year. Some of that uncertainty (gasoline prices) is beyond our control, butmuch is about policy – both fiscal policy in the U.S. and efforts to right the ship in Europe. The outlook forgrowth in the remainder of this year appears a bit brighter than it did a couple of weeks ago. However, the2012 economic outlook is still troublesome.