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A Moderate Recovery – More Of The Same

October 29, 2012

The pop in defense spending in 3Q12 wasnít unusual, but itís unlikely to be repeated (moreover, we may see some reversal in 4Q12). The bigger concern is the impact of the fiscal cliff in 2013. About half of the scheduled spending cuts would be in defense. The consensus view remains that most of the pain will be postponed no matter who is in the White House.
-Scott Brown, senior vice president, Raymond James & Associates

The advance estimate of 3Q12 GDP growth was not far from expectations. Consumer spending growth was moderately strong, while business fixed investment was a bit weak. The details suggest that some of the headwinds may be abating, although risks are tilted to the downside.

Real GDP rose at a 2.0% annual rate in the advance estimate for 3Q12. That figure will be revised, and revised again, but the story isnít likely to change much. Domestic Final Sales (GDP less net exports and the change in inventories) rose 2.3% (vs. 1.4% in 2Q12). Consumer spending rose at a 2.0% pace, a bit less than expected. Business fixed investment fell 1.3%, a smaller decline than was anticipated. Spending on equipment and software was flat, a contrast to the reported sharp drop in shipments of nondefense capital goods ex-aircraft.

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