It was pretty lonely forecasting those kinds of GDP numbers several months ago!
While the 8% budget deficit keeps it all muddling through at modest levels of growth, it’s still a far cry from being ‘acceptable’ in my book, as it’s just barely enough to reduce the output gap.
And letting FICA go up at year end or somehow paying for continuing the current level could trim quite a bit of Q1 aggregate demand.
Even though the 9.3% rise in starts was led by a 25% gain in the volatile multi-family component, this still represents ‘news’ for GDP forecasts as most (including the Fed) did not assume any contribution to growth from this sector.
Some Q4 GDP estimates starting to move from 3.5% to 4%, and Q1 also now looks to be in the 3.5% area (assuming payroll tax cut is extended).
Although still likely, FOMC may have a lively debate on extending ‘conditional commitment’ beyond mid-2013.