US Q4 economic growth may be fastest in 6 quarters: Analysts

WASHINGTON, Nov 19 (Bloomberg): The US economy may end 2011 growing at its fastest clip in 18 months as analysts increase their forecasts for the fourth quarter just a few months after a slowdown raised concern among investors. Economists at JPMorgan Chase & Co in New York now see gross domestic product rising 3 per cent in the final quarter, up from a previous prediction of 2.5 per cent. Macroeconomic Advisers in St Louis increased its forecast to 3.2 per cent from 2.9 per cent at the start of November, while New York-based Morgan Stanley boosted its outlook to 3.5 per cent from 3 per cent. "The incoming data on consumption , business spending and residential investment all point to GDP growth in the fourth quarter tracking 3.3 per cent," said John Herrmann, senior fixed-income strategist at State Street Global Markets in Boston. Herrmann, who is the second most-accurate forecaster of GDP based on data, had been looking for fourth quarter growth of 2.4 per cent at the start of this month. The economy expanded at an annualised pace of 2.5 per cent in the third quarter. Joseph LaVorgna, chief US economist at Deutsche Bank Securities in New York, said he wouldn't be surprised to see fourth-quarter growth of 4 per cent, though for now he is sticking with his forecast of 3 per cent. The strengthening economy will help lift US stock prices, which have been depressed by the sovereign debt crisis in Europe, LaVorgna said. "There's too much pessimism built into the market," he said, adding that the Standard & Poor's 500 Index could break 1,300 by year's end. The stock gauge closed at 1,216.13 yesterday. The economic pickup also may push up yields on Treasury securities, Herrmann said. The yield on the 10-year note could rise to 2.25 per cent or higher in the first quarter of next year, he said, assuming Europe avoids a financial catastrophe akin to the 2008 bankruptcy of Lehman Brothers Holdings Inc. The 10-year yield stood at 1.96 per cent yesterday, according to Bloomberg Bond Trader prices. Behind the revised fourth quarter forecasts: Consumers have not cut back on spending even with the turmoil in world financial markets, putting pressure on companies to rebuild inventories they ran down because of concerns about Europe.