Diane Swonk, Chief Economist
Dec. 22, 2009 – 7:45 a.m. CT
Revisions to GDP Disappoint
In a surprise, real GDP was revised down AGAIN for the third quarter, from 2.8% to 2.2%, with losses fairly broad-based. At least some of that weakness will be regained in the fourth quarter, with recent data suggesting gains of almost 4%. The second half average, however, is still close to 3% – or less than half what we should be seeing at this stage of the game.
The Bottom Line: The economy is improving, but at a slower than optimal pace. Indeed, we didn't even hit our potential growth rate in the third quarter, which is why unemployment remains so stubbornly high. We are poised for much better growth at the end of the year, but the Fed appears more than justified in its stance to keep monetary policy easy for now. Unemployment will be a much larger problem than inflation in 2010. Beyond that, much depends on the Fed's willingness and ability to tighten, given threats by Congress to curtail its independence.
NOTE: Some 40% of shoppers are still waiting for more deals to finish their holiday shopping. Moreover, spending on gifts appears to be overshadowing parties and social events this holiday season, as we all ring in the New Year with a little more humility than in the past.
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