Many Wall Street analysts are forecasting a steep 3 to 4 percent Q4 contraction. But they are not factoring in the roughly $200 billion dollar drop in consumer energy expenses that is accruing from the collapse in oil and gasoline prices. This huge energy tax cut effect will be a big booster for consumers and businesses. Not only will it benefit consumer purchasing power, it will also improve the profits picture, and as a result, the stock market.
In addition, credit markets are continuing to thaw. Health is gradually being restored to these formerly frozen markets. Banks are beginning to lend to one another.
The bottom line is that we are experiencing short-run pain as excesses are wrung out of the financial system. It’s all part of the business cycle. When the dust clears, the mustard seeds of the next expansion will begin to bloom.