3 Factors Shaping the Fourth Quarter

NEW YORK ( TheStreet) -- The third quarter of 2011 will go down in the economic history books as one of the most volatile and turmoil-filled investors have experienced. It rivaled 2008 and early 2009, which is saying quite a bit given the fact that those two years were the epicenter of the worst economic contraction since the 1930s.

Given the backdrop of volatility, what should investors expect in this final quarter of the year? Unfortunately, forecasting in the current environment is perilous, so I thought I would focus my comments for the upcoming quarter on the key things that will shape the operating environment. Here's my list:
Without more meaningful reform of labor markets, regulations and tax laws, Greece, Italy and Portugal are on a treadmill that will lead to nowhere -- and taking us with them.

Europe, Europe and more Europe.
Focusing attention on Europe is not the boldest statement I can make, but there are a number of factors playing out that warrant attention. Restructuring Greek debt, providing liquidity for other sovereign debt and agreeing on ongoing fiscal discipline will likely dominate the headlines over the next few months. They are all core issues the eurozone must address and extremely important for the global economy and financial markets.

Yet my focus remains fixed on other activity, or lack of activity, in the southern economies that face substantial structural reform challenges to improve competitiveness. Without more meaningful reform of labor markets, regulations and tax laws, Greece, Italy and Portugal are on a treadmill that will lead to nowhere. The lessons of Ireland and Spain are clear -- restructuring sovereign debt is insufficient. Structural reforms are also required. Monitoring policy changes below debt negotiations is a must-do for anyone trying to understand what the future holds for the eurozone.

Fiscal policy in the U.S. remains unresolved.
While the Budget Control Act removed the debt ceiling discussions from the headlines, it also placed a number of important deadlines on the calendar. In Washington -- true to its nature -- these deadlines will approach and political theater will resume. The last thing a fragile recovery and sensitive financial markets needs is another round from Washington. Unfortunately, there remains a good chance a repeat is in the works.

In addition, heading into 2012, the level of debate will be amplified by the election and the impending expiration of the Bush tax cuts. While attention has been on the Fed and QE III, the real storyline in Washington will remain focused on the direction of fiscal policy.

Consumers can't do it alone.
Obviously, consumers' spending remains a very large section of the U.S. economy, and any further pulling back on their part will likely tip the recovery into a secondary recession. Consumers remain stretched and are in the process of deleveraging, which will be a decadelong journey. So don't expect much beyond 2% spending growth in real dollars.

The real key to the recovery accelerating, or even maintaining a moderate growth rate, should be focused on business investment and export growth. Fortunately, business investment has held up well throughout the tepid recovery and balance sheets are in good shape, so the outlook should be positive. Uncertainty from Washington and globally may continue to restrain investment, so it is important to focus attention on where the sector will go by the end of the year. The same goes for exports, which have held up well throughout the recovery. With global growth slowing, uncertainty in Europe and China rising and concerns over the health of other emerging markets starting to develop, monitoring the pace of export growth will be on our radar screen.

It has been a challenging year -- beyond the expectations of most. In its final quarter let's hope a number of things break positively and provide support for stronger growth and less volatility in 2012. For investors it will be important to not lose sight of developments below the headlines that will likely shape the direction heading into 2012.

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Paul Ballew is senior vice president of customer insights and analytics at Nationwide Mutual Insurance in Columbus, Ohio. Ballew previously served as a Fed economist, a partner for J.D. Power and a senior executive at General Motors.