U.S. macro outlook: 2009 Q4 might surprise

As expected, the third quarter rise in real Gross Domestic Product (GDP) was revised downward by the U.S Bureau of Economic Analysis, from 3.5 percent growth to 2.8 percent in late November. And it is likely that the next look (on December 22) will bring yet another downward revision. But forward looking analysts point out that these revisions of history are less important than activity going on right now in the current quarter, and Q4 2009 is likely to bring some positive surprises.

As expected, the third quarter rise in real Gross Domestic Product (GDP) was revised downward by the U.S Bureau of Economic Analysis, from 3.5 percent growth to 2.8 percent in late November. And it is likely that the next look (on December 22) will bring yet another downward revision.

But forward looking analysts point out that these revisions of history are less important than activity going on right now in the current quarter, and Q4 2009 is likely to bring some positive surprises. The W. P. Carey Round Number forecast has been updated this month with Q4 projections of a 3.5 percent gain in GDP and an increase of 1.5 percent in consumer spending. There are several reasons for guarded optimism about Q4.

The stimulus program will be picking up steam as we move closer to 2010, when the largest portion of spending is scheduled (about 40 percent, compared to about a third in 2009). The Conference Board index of leading indicators, for the eighth consecutive month, was up again in November. Monthly job losses were much smaller (11,000) in November. And November consumer credit fell by a smaller amount ($3.5 billion) than expected.

The personal savings rate has stabilized at just over 4 percent, and consumers may be ready to start buying again. Retail sales were up by 1.1 percent in October and 1.3 percent in November. These gains support an increase in Q4 of 1.5 percent in consumer spending, and set the stage for an annual increase in 2010 of about the same magnitude.

Some components of the U.S. macro forecast for Q4 were revised downward this month. Nonresidential building continues to disappoint, and the forecast for Q4 was reduced to reflect an expected annualized decrease in this GDP component of -15 percent, the same as the revised Q3 figure.

The GDP real growth forecast for 2010 remains at 2.5 percent. Although Q4 might be the best quarter for growth since the recession began, the economy is still afflicted with tight credit conditions, high unemployment and a rising foreclosure rate. The year ahead is likely to be characterized by more job losses in the first half and subpar growth for the rest of the year.