If economists have learned anything over the past 12 months, it's that one quarter of strong growth doesn't necessarily lead to another.
In fact, the economy is running so hot and cold these days that few on Wall Street were able to take comfort in a stronger-than-expected GDP report for the third quarter.
The Commerce Department said revised GDP rose 4% last quarter, slightly better than the consensus estimates and higher than the original forecast of 3.1%. But instead of celebrating the news Tuesday, some economists began ratcheting down expectations for the quarter currently under way.
Ethan Harris, senior economist at Lehman Brothers, said the data revealed that most of the strength came early on and that momentum faded as the quarter drew to a close.
"We had a big surge in auto sales in July and they remained strong in August but have been soft ever since," he said. "Similarly, industrial production was OK at the beginning of the third quarter but has gotten progressively worse."
Harris, who is looking for just 1% growth in the fourth quarter, also noted that inventory investment was "a little higher" last quarter, which adds to the case for slow growth going forward.
Joel Naroff, president and chief economist at Naroff Economic Advisors, is somewhat more optimistic and is currently looking for 2.6% growth in the quarter under way. But he did note that the third-quarter results cast doubt on that forecast.
"There were some areas that I thought would do better
in the fourth quarter, but they have already gotten better," he said.
Auto sales accounted for 42% of the growth in the quarter as consumers continued to be attracted by zero-percent financing and other incentives. But economists say this is already slowing down.
Other major contributors to growth in the third quarter were government spending, equipment and software and private inventory investment.
Investment accounted for about a quarter of the gain, with investments in equipment and software up 6.6%. Still, investments in buildings fell by 20.6%. Inventories added 0.5 percentage points to GDP while government spending added about 0.6 percentage points.
Still, the National Association for Business Economics cut its fourth-quarter GDP forecast to just 1.4% from 2.7%, citing mounting evidence that the economy lost momentum "sometime late in the summer." NABE panelists also cut their estimate of first-quarter growth to just 2.5% from 3.3%.
For the full year, the group still expects growth of 3%, with quarterly growth ranging from 3.3% to 3.8% starting in the second quarter. It also expects profits to rise 15% next year.
In Tuesday's GDP report, after-tax profits rose at an annual rate of 2.1%, the third straight quarter of sequential growth. But Harris said a strong profit number in the fourth quarter seems unlikely.
"This has been a very uneven economic recovery," he said. "Last quarter you had OK GDP growth and cost-cutting, but this quarter you'll lose some of that top-line growth."
Another economic report, the Conference Board's consumer confidence index, also sparked concern among some economists Tuesday. Confidence recovered in November to a reading of 84 after falling for five straight months. But the number was about one point less than economists had expected and sentiment remains at its lowest level since February 1994.
"Confidence was up but not as much as I thought it might be," said Naroff. "The consumer is still a little bit uncertain and that's one concern I have."
The current situation index was essentially flat in November, rising to 77.6 from 77.2. Still, the expectations index rose to 88.4 from 81.1.
The percentage of consumers expecting fewer jobs over the next six months fell to 18.9% from 22.1%, while the percentage expecting more jobs held steady at 15.3%.
Separately, new home sales fell 4.5% last month, but remained at a higher-than-expected rate of 1.007 million units, according to the Commerce Department. Economists said the data weren't surprising, coming just one day after the National Association of Realtors reported an unexpected jump in existing home sales last month. Economists expected new home sales to cool to a pace of 985,000 homes.