Analysts change tune on GDP, now see solid Q3

Tue Oct 25, 2011 6:47pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - After months of dire predictions for the economy, including warnings of a new recession, forecasters are singing a different tune.

Projections for an extremely weak third-quarter have been shredded and replaced with a fairly upbeat assessment of the quarter that just closed last month.

Economists say they put too much stock in the sharp decline in consumer confidence and the extreme turmoil in financial markets sparked when Standard & Poor's stripped the nation of its AAA credit rating in early August.

"At that point, we based our forecasts on the fact that all the indicators were turning downwards, not knowing that was the trough," said Millan Mulraine, senior macro strategist at TD Securities in New York. "We underestimated the pace of momentum that was building in the economy at the time."

Economists now estimate gross domestic product grew at an annual pace of 2.5 percent, according to the median of a Reuters poll. That would mark a sharp step up from the 1.3 percent logged in the second quarter and a far cry from what some feared just a few weeks ago.

The government releases its first estimate of third quarter growth on Thursday at 9:30 a.m. EDT.

While consumer confidence crumbled to levels last seen during the 2007-09 recession. and some business surveys pointed to a contraction in factory output, so-called hard data measuring actual activity continued to show modest growth.

Data from retail sales to factory orders to manufacturing output painted a portrait of households and businesses not shy to spend, despite feeling terrible about the economy.   Continued...