The GDP Outlook

October 24, 2012

There is a somewhat natural recovery process, which appears to be playing out (albeit more slowly than the typical recovery). Many people ask what will drive the recovery. Itís not any one thing. Rather, many things gradually improve in tandem.
-Scott Brown, chief economist, Raymond James

On Friday, the Bureau of Economic Analysis will release the advance estimate of third quarter GDP growth. Thereís always a lot of uncertainty in the advance estimate. The BEA will have to make assumptions about inventories, foreign trade, and a few other missing components. However, the report should continue to show the U.S. economy in recovery mode.

As usual, investors should not get too caught up in the headline GDP figure. It will be revised in late November and again in December (and again with the annual benchmark revisions in late July). Focus on the key components. Personal consumption expenditures, roughly 70% of GDP, are likely to have risen at a moderately strong pace. Retail sales were reported stronger than expected in September, while figures for July and August were revised higher. In contrast, business fixed investment should appear relatively weak. The manufacturing data for August led to declines in forecasts of 3Q12 GDP growth. The September retail sales data have done just the opposite, pushing estimates to the top end of the 1.5% to 2.0% range.

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