A CHALLENGING START TO PRESIDENT OBAMA’S SECOND TERM
• President Obama wins reelection, but faces a mixed economic picture, with significant medium-term challenges. A first task to handle is the fiscal cliff
• Super-storm Sandy causes major short-term disruptions, but long-term economic impact should be minimal
• Labor markets deliver a string positive surprises
• The eurozone quiets down…for the time being
• 3Q12 data underscore weak growth at a 2% trend
• The housing market continues to mend
• The consumer remains optimistic and manufacturing seems to be bottoming out
• No acceleration of growth expected until mid-2013
• Risk-on markets tread water in the face of weak earnings and policy uncertainty
The Economy Inches Along: The first reading of third quarter GDP growth reflect a weak economy growing at trend. (Keep in mind that these numbers are the first 3Q12 growth estimate and that they are subject to two revisions.) Output rose at an anemic 2%, slightly better than market expectation of 1.9%, and up from 1.5% in 2Q12. The economy continued to show sharp divergences. On one hand, the biggest contributions to growth came from the consumer side, residential investment and government (the latter mostly from a sharp jump in defense spending). On the other, net exports, fixed business investment, inventories and state and local government all shrank.
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