On Wednesday the U.S. government released its third quarter 2011 GDP growth number which was revised downward to 2.0 % from 2.5%. Although a downward revision of GDP is not a positive development, the 2.0% GDP figure for 3Q is still a considerable improvement over the previous two quarters.
First quarter U.S. GDP was .4% while second quarter GDP was 1.3%. The trend is clearly moving higher quarter over quarter. Consumer spending makes up 70% of GDP.
Macroeconomic advisors forecast 3.2 % GDP for the U.S. in the fourth quarter. Another positive development heading into 2012 is a new free trade deal that was recently completed with Korea that will begin on January 1st.
Risks to the U.S. economy come from Europe with recessionary and political fears connected to sovereign debt, spiking bond yields in Italy and Spain, European bank liquidity, a potential credit downgrade with France, and the overall stability of the European Union.
Bloomberg reports this morning that their sources have told them that the European Central Bank (ECB) is said to be buying Italian bonds.
U.S. debt problems continue to linger especially after the recent inability of the Super Committee to work out a bipartisan deficit reduction plan. It remains to be seen what kind of fallout will occur after future spending cuts are made to pay down $1.2 trillion in U.S. debt over the next 10 years. Broad based spending cuts have the clear potential to disrupt the health of the U.S. economy; however, there is a dearth of measurable economic data highlighting the full impact to the overall U.S. economy. The spending cuts are not expected to be made until 2013.
The possibility of future political discord in Washington D.C. related to extending the payroll tax cut and unemployment benefits by the end of 2011 may also weigh on investors’ minds during the weeks ahead.