Fourth quarter GDP ended on a uptrend, coming in at 3.1%. The state of the economy was healthy and it looked like growth would continue to match or exceed Q4. Based on that scenario, Bank of America (BAC) analyst Ethan Harris, forecast first-quarter 2011 GDP to come in at 3.3%.
But in the few short months of 2011, the world is getting turned upside down. The conflict in Libya has cut OPEC oil production and sent oil prices skyrocketing. In turn, the price of gasoline is nearing $4.00 per gallon. And food processors are raising prices due to higher raw commodity prices. These two factors have put a dent in the household budget.
Wages are not rising. Unemployment is still near 9%. Corporations are sitting on piles of cash instead of hiring new workers.
As all of this was taking hold, Bank of America lowered its forecast to 2.2%. Now with further analysis, their projection is for growth of only 1.5%, as reported in Fortune.
Now we see the price of Brent crude at $120 per barrel and corn prices at record highs of $7.60 per bushel. These numbers have not even started working their way down to the consumer. The Federal Reserve set a 2% rate for inflation. You can bet that this will be exceeded by a wide margin -- that is if the Fed discards the "core index," which excludes food and energy. Otherwise they will hide all this and tell us that all is well.
We have yet to sort this data for implications on corporate profits and stock prices in the coming months.