Futures Outlook - An Excerpt from CRB'S Futures Market Service
US GDP report surprises to the upside but tougher tests will come later
The Q3 GDP report of +3.5% was stronger than the expected report of +3.2%. Moreover, the data underlying the report provided some evidence to suggest that the US recovery will be sustainable and will not simply fizzle out next year. The Q3 GDP increase of +3.5% was the first positive GDP figure after four straight quarters of negative growth.
The positive Q3 GDP figure ended the recession, at least in GDP terms, and left the 2008-09 recession at a total decline of –3.8% from peak to trough, the worst recession in post-war history. The National Bureau of Economic Research, the official arbiter of recessions, dated the beginning of the recession in December 2007, a half year before GDP turned consistently negative in Q3-2008. The US recession likely ended this past summer, but the NBER will wait for up to a year to announce the official end of the recession so that they have a more complete set of data and can see if the US economy might slip back into recession after a quarter or two of temporary relief.
The Q3 GDP figure was artificially inflated by the cash-for-clunkers program and by the federal government stimulus programs. In fact, the GDP report would have only been up 1.9% excluding the auto sector, which received a huge boost from the July-August cash-for-clunkers program. However, there was enough underlying strength in the report to convince most forecasters that GDP growth will carry-through at positive rates over the next year. The market consensus from a recent Bloomberg News survey of 65 economists is that US GDP will remain positive at +2.4% in Q4 and then stabilize a +2.5% in the first half of 2010.
The market consensus is that GDP will rise by only +2.4% in 2010 and by +2.8% in 2011, which is well below the post-war average of +3.3%. The sub-par growth is expected due to the negative effects of the labor market, housing market, and continued high debt levels. That may leave some room for some positive surprises in coming quarters since expectations for the economy remain low.
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