The cat is finally starting to peek out of the bag. Today morning the commerce department reported that the annualized GDP growth for the third quarter is just 1.6%, much lower than the consensus Wall Street estimates of 2.2%. The markets seemed to take the hint and went somewhat lower, though the full extent of the impact on markets will be apparent only in the coming weeks. There could even be a minor rally in the year-end before we start to see whether the economy is really in a recession.

I don’t see any real economic engine driving the economy and financial markets in the coming months. A minority of economists and commentators are already forecasting the upcoming recession. The fourth quarter GDP growth could be either 0% or even negative. Prof. Nouriel Roubini is among the leading bears forecasting this trend. The Economist, in its most recent issue is predicting that the GDP growth in America for the next few years will be the lowest in almost a century! Ouch….that hurts!

This will have a ripple effect on the broader social landscape in America. If the housing burst proves to be worse in 2007-08 than what the average Joe Sixpack expects, then we will see a resurgence of trade unions (memberhsip of which has been decreasing for the past quarter of a century) and a potential Democratic president in 2008. Growth will be restricted mainly to innovative industries and excess flab across the economic landscape will need to be shed.

Lots of people have lost their shirt betting against the American consumer in recent decades. But as Adam Smith and Ludwig Von Mises will tell you, business and economic cycles are a way of life in a capitalistic society.

The key question is whether the Asian economies will ‘de-couple’ from the upcoming American slowdown (which increasingly looks like a possible recession). Watch out for forecasts from the Economic Cycle Research Institute, which has successfully forecasted all recessions in the last two decades.

I will have more insights on these and other issues over the weekend. I’m also changing the blog posts format into just one single post everyday, along with a collection of links to interesting articles that I read in the media.

Have a happy weekend and don’t forget to set your clocks back on Saturday night! Remember, fall back and spring forward