Look for positive U.S. GDP surprise on Thursday

10/24/2011 1:19 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

While we watch what’s unfolding in Europe, let’s not forget that we get the first read on U.S. third quarter GDP growth on Thursday, October 27, before the New York markets open.

Economists are projecting that, rather than stalling, the U.S. economy will show its fastest growth rate of 2011. GDP will grow at a 2.5% annual rate in the quarter, according to the median forecast of 68 economists surveyed by Bloomberg. In the second quarter the U.S. economy grew at an annual rate of just 1.3%. The growth rate in the first quarter was an even lower annualized 0.4%. The 0.9% growth rate for the first half of 2011 has set off fears that the United States is about to slip into a double-dip recession.

A third-quarter reading of 2.5% annual growth would at least temporarily cast doubt on that conclusion. And while a consensus among economists may be pointing to stronger growth in the quarter, I don’t think most investors have factored this view into their take on the market. It’s likely, in my opinion, that a report of 2.5% annual growth will be a positive surprise for U.S.—and perhaps global—stocks.

Whether the data actually mean much of anything is another issue entirely. There’s a good chance that the extremely low 0.4% growth rate reported in the first quarter was a result not of a sudden slowing in the economy but of change in how the GDP calculations dealt with changes in inventories. As a result the data for the third quarter may be over-stating the strength of the economy just because the earlier data made the economy look so weak.

It does look now—and this is what economists are pointing to in their forecasts—that orders for business equipment rose in September and that consumer spending may have climbed more than expected. That increase may be the result of lower gasoline prices—gas cost $3.43 a gallon on average at the end of September, down from a high of $3.71 in July, according to the AAA—rather than any pickup in incomes. Economists project, according to Bloomberg, that consumer spending increased at an annual rate of 1.9% in the quarter after growing at just a 0.7% rate in the second quarter.

 

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