Four Reasons Fourth Quarter Will Disappoint

This is often the quarter that makes or breaks the economy, as this is the moment that the consumer rides to the rescue in an economy that relies on consumption for 80% of the nation’s GDP. The retailers do not refer to the days after Thanksgiving as Black Friday weekend for nothing. There is a pessimistic sense that economic growth will fall by over a point, and the average will be between 1% and 1.5%. Some of the more pessimistic assertions predict the rate will be less than 1% for the quarter. That takes annual growth down an anemic level.

The reasons for all this pessimism vary, but most of the analysts hold that four factors are playing a part. The first of these is the massive storm that hit parts of New York and New Jersey could not have been more badly timed. The economic damage from Sandy was staggering—estimates are running between $80 and $120 billion. The loss of business is not calculable at this point, but the retail community in the region has already reported the slowest period of sales in decades. The loss is made worse by the timing, as this is the portion of the year that matters the most to business. If a silver lining exists, it is that next year the impact will see the reverse, assuming that the money for rebuilding is forthcoming. Traditionally, a disaster like this one is followed by significant economic growth as communities are put back together.

The second reason to worry is that consumers are not responding as aggressively as had been expected earlier in the season. It would appear that the consumer is not yet enthusiastic about going into debt to buy presents. As such, they are reacting more frugally than expected. The Black Friday numbers were decent, but the details showed that consumer snapped up the big discounts and shunned virtually everything else.

The third reason to fear a bad fourth quarter is the too familiar by now "fiscal cliff" fiasco. The business community and the consumer fully expect the economy to be affected negatively by all of this. Even if a last minute solution emerges, the damage has already been done. Most business has slowed in anticipation of a bad start to the next year, and consumers are saving their cash in order to be ready for those tax bites.

The fourth inhibition is global. The U.S. has become increasingly dependent on exports very recently. In the last year, the growth of key foreign economies has stalled, and the U.S. export sector has faltered. Europe is a disaster that shows no signs of abating and even the fast-moving economies have now slowed to a crawl in some cases: China is barely staying above their recession-level growth, while Brazil has tumbled beneath 1%.

-Armada Corporate Intelligence

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