2011 GDP Revisions May Highlight Coming Week

One market strategist believes the passage of the tax-cut extension bill could result in a surge of higher 2011 economic growth forecasts.
By Melinda Peer ,

NEW YORK (

TheStreet

) -- With the Christmas holiday cutting the coming week short, trading is expected to be light even though Wall Street will get a final read on U.S. third-quarter economic growth.

Next week could also bring a wave of upgrades to 2011 growth expectations spurred by passage of the tax-cut extension bill, according to one market strategist.

Phil Orlando, chief equity market strategist at Federated Investors, believes that

President Obama's signature on the bill

-- which maintains Bush-era tax cuts for all Americans for two more years among other provisions -- could be a big driver to the upside for the stock market next week.

He said Federated's macroeconomic committee has already increased its 2011 gross domestic product estimate to 3.5% from 2.8% based on expectations of the legislation's passage by Congress. Orlando expects other firms to rerun their models next week and issue brightened forecasts for economic growth.

"In my opinion, this will drive 2011 GDP estimates up to somewhere in the range of 3% to 4% from where it's currently sitting at 2.6%," Orlando said, adding that once investors see the strong growth expectations, they'll realize that corporate earnings are going to improve.

"This is going to have a significant impact on stocks," he said.

Economic releases will be concentrated across two days during the holiday-shortened week beginning Wednesday, with the final estimate on third-quarter gross domestic product due out at 8:30 a.m. EST. Economists expect the Commerce Department to upwardly revise its reading to 2.7%, from a second estimate of 2.5% and an initial reading of 2%, according to Briefing.com. That compares with growth of 1.7% in the second quarter.

The housing market will come into focus at 10 a.m. on Wednesday when the National Association of Realtors issues its November existing-home sales report and the Federal Housing Finance Agency releases its home price index for October. Wall Street expects to see that existing-home sales rose to 4.65 million in November from 4.43 million in October.

The Commerce Department kicks off Thursday's busy schedule with November reports on personal income and spending, and durable goods orders at 8:30 a.m. The market is projecting a 0.2% uptick in personal income after growth of 0.5% in October, and personal spending is slated to rise 0.5% after similar growth in the previous month. Meanwhile, November durable goods orders are expected to decline 1%, after falling 3.3% in October. Excluding transportation, orders are forecast to show growth of 1% in November, after dropping 2.7%, previously.

At the same time, the Labor Department delivers its weekly read on initial jobless claims. Consensus estimates are calling for claims of 424,000 for the week ended Dec. 18 compared to the prior week's level of 420,000.

At 9:55 a.m., the University of Michigan gives its final reading on consumer sentiment for December. Wall Street is anticipating an upward revision to 75 from a preliminary December reading of 74.2 -- the index's highest level since June 2010. That compares to November's level of 71.6.

The Commerce Department delivers the week's final piece of economic news at 10 a.m. with its November new-home sales report. According to Briefing.com, economists are expecting sales to rise to 303,000 in November, from 283,000, previously.

"I think the economic indicators are all pointing to the fact that the economy is picking up steam and is going to improve," said Peter Cardillo, chief market economist at Avalon Partners. "But we also have to remember that a lot of these institutions have already closed their books for the year, so the market may not fully respond to stronger economic data."

On Friday, Dec. 24, U.S. markets are closed in observance of the Christmas holiday.

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Written by Melinda Peer in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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