US supercommittee fails as economy hits fastest pace since 3Q10

Following a series of rather downbeat comments over the weekend it was no surprise that the supercommittee had to throw in the towel yesterday. While this is expected to result in a series of automatic budget cuts (in 2013, mind you), this can still be reversed as some politicians have advocated; apparently reducing your budget by $120bln a year when the deficit is expected to be more than nine times that is an insurmountable task. Of nearer-term importance is whether this outcome results in a failure to extend the payroll tax cuts - even if it is not a part of the automatic cuts - which would mean a further drag on the economy next year.



US economy expands at fastest pace in a year: While the economy looks likely to lose some speed next year it will end this year on a high note. Today's second report on third quarter GDP is expected to show unchanged annualised growth of 2.5 percent according to consensus despite a slowdown in inventory accumulation (offset by improved trade balance). With spending starting on a high note in the fourth quarter as confirmed by the October Retail Sales and an expected larger contribution from inventories, precisely due to the slowdown in the third quarter, we could see GDP growth well above 3 percent in 4Q'11.

Eurozone consumer confidence in the drain: Understandably, consumers' confidence is sorely lacking in the monetary union at the moment as the domino effect from the sovereign debt crisis rolls on and has spread to France and beyond. Confidence fell to -19.9 in October after a post-Great Recession peak of -9.4 in November of last year and with the crisis ongoing, high unemployment and weak wage growth confidence is expected to decline further to -21 in November, which will impact spending.