To characterize the third quarter as tumultuous would be an understatement. Events around the world were almost universally negative in respect to economic growth, capital markets losses and political and social unrest. It seemed wherever one turned risk levels were heightened.

In the United States, revised annualized GDP growth for the first half of 2011 amounted to less than 1 percent. In our last quarterly article, we forecasted that second quarter GDP would be lower than the first quarter’s then reported 2 percent level, and it was. Final second quarter GDP numbers showed growth of 1.3 percent. However, first quarter GDP was later revised downward to a miniscule 0.4 percent growth.

Our outlook for GDP growth in the third and fourth quarters of this year has been in the 1 to 2 percent range, but third quarter growth could be somewhat above our 2 percent ceiling due to stronger than expected retail sales and industrial production in September and a narrower trade deficit through August. It remains to be seen if the third quarter strength can be sustained given the continued rise in inflation, weak consumer income growth, high unemployment and slowing economic growth among our trading partners.

In the recent Beige Book, the Fed notes a U.S. economy with significant weakness in key ... Log in to view full article.