While the financial markets are still riding the euphoria of low unemployment and a better than expected Q3 GDP reading, it's time to begin preparing now for what could be a very rough Q4.

The U.S. unemployment rate is still a near all-time low of 3.6% and the Dow just surpassed the 28,000 level for the first time. The high level numbers look good but this past week was a reminder that there's still a lot of weakness below the surface.

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Back in the beginning of November, it was the ISM manufacturing numbers that sent the Q4 forecast plummeting. Manufacturing PMI rose to 48.3 in October but came far short of the 48.9 estimate. Production levels and import levels were the biggest detractors and sit well in contraction territory.

This week's hit came from industrial production numbers. Retail sales looked all right but industrial output dropped 0.8% month-over-month, far worse than expectations for a drop of 0.4%.

While consumer spending has thus far been able to keep GDP numbers above water, it's becoming increasingly evident that there's only so much it can do while business activity keeps dragging it down.

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Business investment, both residential and non-residential, continues to decline. Companies are also working off a lot of inventory built up right after the corporate tax cuts. Rising deficits and cheap money continue to mask a lot of underlying weakness.

The GDPNow forecasts tend to be a bit more volatile in the early weeks of the next quarter's estimate before settling into a tighter range. I don't want to put a lot of emphasis on a number with half the quarter yet to go but it's sure looking like the economy is setting up for a sharper slowdown than originally expected.

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