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We'll disappointing numbers out today show that the US economy grew slower than originally thought in the third quarter by just 2%.
That's down from a previous estimate of two and a half percent but is this a bad sign or just a blip on our radar screen joining me now is Alan Levenson chief economist for teen group price happy to have been -- here today Allen.
I you make some comments and I've been getting picked out by news -- -- and alike about 2012 predictions.
-- now forecasting.
That the US economy will only grow by 2% from 2012.
-- And in light of what's happened with the super committee and lack of decision and how does this change things in and sort of what's your rationale.
-- -- of the rationale for the 2% as opposed to something stronger is that the headwinds of the crisis in Europe are -- what was already going to be a fairly weak recovery.
That said I was I'm banking on the payroll tax cut from last year.
And be extended unemployment benefits from last year being extended into this year they're scheduled to expire on the extended and actually are scheduled to expire so.
And these failure on the part of the JSC tells me.
That there's been somewhat less of a probability that we get the compromise is needed to to get those -- Actually a bullish call even predict that that actually is gonna get extended for next year so what happens -- -- happens here models impeaching don't see that materialize.
Relative takes front probably there is much as half a percentage point off of growth you know we've.
Not all that money gets spent we saw that this year but it's obviously not constructive and then -- take -- below 2%.
Looking at your work it really seems like though the big adjustment for you came for the first quarter of next year.
What's gonna be so dramatically different about the first quarter now they just thought not to long ago.
Europe and did this within the change -- that we made in mid August when the Euro area crisis was -- from small countries to bigger countries.
We thought growth was going to be one and a half percent in the in this quarter the fourth quarter's coming in close to twice that as it is but we still think -- we're gonna see growth about.
One and a half percent maybe a little stronger in that in the first half of next year that's a big difference is the way to.
-- that because Alan is that because they're gonna implement austerity there you know in other words a lot of people argue here and it's comes back home as well.
If we have austerity now all votes needed of course this could be the wrong time you know and austerity slows down economies.
-- look at what's happening in countries in Europe they.
They implement fiscal austerity -- week -- their economy so they don't get.
There's much benefit from the fiscal austerity -- thought they're made to implement more fiscal austerity which weakens the economy they miss the fiscal targets again interest rates go up.
We don't need fiscal austerity now we need is fiscal austerity over long period of time focusing on our entitlement programs.
And through shoring up our tax -- we would need to cut this year's budget deficit we need to cut.
The longer term budget deficit.
Let's talk about Europe is Europe in a recession right now because I know and a lot of people are weighing that.
That we think so -- look at purchasing managers index is a lot of production data for particularly the southern countries.
And it looks like the region at large is in recession -- that this -- cinemas even turned sharply negative in Germany which was the stronger economy and what about the United States.
The United States and is surprisingly kept going on the same moderate -- that it was going on before the Euro area crisis you mentioned 2% growth in the third quarter I've said we're gonna see some like.
Two and a half to 3% in the current.
But what about their risk of contagion -- mean and this is what we have a spillover of facts when one region goes into recession me we ten cent.
-- the impact of that.
Probably you know there's an old saying when the US therapeutic -- in some cities as the -- -- -- called break the Europe has pneumonia the US is going to -- right but it but I don't think fifty transmission.
East to west across the Atlantic is as strong as it is going in the other direction that's why I'm looking for slower growth.
Because of Europe and not an outright recession in the US.
Owner referred to your slides -- and -- the -- on this but the vehicle which we're talking a lot here about risking your outlook and you talked about on the downside -- deeper Euro crisis we've covered that USO.
Fiscal austerity the hard landing in China.
But on the upside because we really haven't talked about too much.
You talk about stronger export performance but also lower commodity prices I found that to be curious.
Because to me it seems like for America's strong exports -- be driven by a lower dollar and that consequently -- mean higher commodities can we have both and we have lower commodities and stronger exports.
Well I guess I guess the question is can we have lower commodities in a much weaker dollar.
And and then there you make a good point the -- firmed in in recent weeks as commodity prices have.
Come off in this general risk off trade I think it's possible to have stronger.
Exports and lower commodities to the extent that the US -- harvested a lot of export competitiveness a lot of improvement in competitiveness over the last few years.
And that the dollar is in fact -- lower than it did on their on a longer term timeframe even if it's risen.
Recently right and so did the yes I think that we could surprise ourselves relative to this 7% or -- export growth I'm expecting.
OK you know to that when I hate to say to people watching shows.
We -- have a German man -- -- a bill on -- for the rest the world wants strategy and more or or Chevy on this you know I mean you know I'm just not sure we can do this bill without manipulating the dollar lower.
Well I would say -- admitted it's important to remember that it is prices the second thing that determines.
Demand for goods income is the first thing.
And you've got to be producing something some of the somebody wants and then do -- right I would.
I think I don't put out to the US automotive industry as the leading -- my industry my poster child for US export competitiveness is capital goods OK and then machine tools -- like it's it's a big sector we've got -- we are definitely an alternative an -- still look at Boeing bones and a fire specialty chemicals in the life that.
Aloe lend elevenths and T.
Rowe Price so great to have you with -- say thank you for your time thanks for has a lot --
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