FSD,

I wouldn’t go rushing off to the “soft-landing scenario” based on Quarterly reporting of GDP… this macro-economic analysis is a tough gig. There are so many different ways to spin macro data…

GDP is up = economic recovery = housing recovery.

OR…

GDP is up = inflationary pressures typically follow = higher interest rates = downward pressure on housing prices.

I wonder why so many economists are wrong all the time… too many moving parts.

FSD, I wouldn't be so quick to breathe a sigh of relief; GDP growth was revised upward due to (1) higher inventory (which means lower production in the future, and which reflects the downward revised Q3 personal consumption) and (2) lower imports (not important; bounces around). If you look at the press release, the numbers are ugly.

http://www.bea.gov/bea/newsrelarchive/2006/gdp306p.htm

18% drop, quarter to quarter, in housing outlays.  Non-residential outlays held up in Q3, but I've seen data elsewhere showing that Oct. saw a slowdown.  And, I vaguely remember seeing somewhere (from ps?) that some of the computer companies, this week, announced a disappointing outlook for sales.

No, there was nothing positive in the revision of Q3 GDP, in my opinion.

JG,
I went through the report this morning and you are right that it doesn’t equate to immediate soft landing but if you remove the 0.4% number due to added inventory, the number comes out to be the same 1.8% as expected by the consensus of economists. The same economists now predict Q4 GDP to be 2.6%. In general, no matter how you spin it, it is better news than the original 1.6% GDP number. But folks here have been trying to point out the same thing to ultra bears around that there are too many moving parts to accurately predict macro economic numbers. Yes, we are headed into 2007 very cautiously, there are signs of slowdown and possibly recession but don’t make predictions like GDP will be 0% in Q4 or SP500 will be 600 by Q12007.

Roubini is getting a beating on his blog for previously drumming up the fact that his forecast of Q3 GDP of 1.5% was closest and consensus forecast(1.8%) was wrong. I think Roubini deserves the criticism he is getting and cannot use excuses like high invesntories, imports, etc in the report today. The way he strongly pedicted 1.5% sounded as if he should have known and factored all these things into his prediction. If he didn’t knew about these, he should have been far more cautious in his predictions.

GDP is up because inventory is higher than originally forecast. That is bad news. Rising inventory is another sign of economic slowing. Inventory piles up because spending is down. (The second reason is lower gas prices, which reduced our imports, so that is good.) It seems that manufacturers were slow to adapt to reduced demand from consumer, so they kept making stuff, increasing GDP. But if you can’t sell the stuff you made, you’re going to be happy about the economy because you made it? That doesn’t even make sense.

Poway,
You are right about invesntory build up and it probably explains why the durable goods numbers went down yesterday because manufacturers are probably waiting to clear inventories. However, even if you exclude the effect of higher inventory, the GDP number would come out to be closer to 2% which was closer to the consensus estimate by bloomberg. The same consensus for Q4 now is 2.6% I guess. BTW, Beige book pointed to moderate growth and didn’t show any frightening signs of recession, inflation and labour cost estimates were reduced, corporate profits hit record highs in Q3 (31.4%), buisness spending revised upwards, commercial construction revised upwards, etc. On the other hand, consumer spending was revised downwards and most of that contributed towards services which is good for jobs but bad for factories/retailers. So its a mixed bag.