Equity markets were chastened by the revision in US Q4 GDP numbers from minus 3.8% to minus 6.2% the worst results since 1982. The downwards revision should have been no surprise based on the rapid contraction in Asian exports in the same period - after all why should the US be faring so much better than anywhere else?.
We take some perverse comfort from the numbers as they show that we are in for a sharp recession that is much more likely to be brief and fiery rather than a Japanese 1990's style recession which was long and gradual. By Q3 we should be seeing some marked slowdown in US economic contraction with stabilization emerging in Q1 2010 and an upturn thereafter.
If true this has a number of important effects:
1) The US budget is too optimistic in its revenue assumptions - the deficits will emerge larger than currently forecast
2) Banks that have weathered the Q4 storm should only have one more quarter of dire contraction ( 6% annualised ) to face before the storm starts to ease - this should make provisioning easier
3) With the worst numbers since 1982 there can be some confidence that this is not going to be a long drawn out mild recession - it is going to be red in tooth and claw , brief and savage. The epicentre of the storm is upon us and it won't be too many more months before the cash sitting on the sidelines starts looking for a new home. The US was the first in to the downturn and should be the first out .
Of course with higher taxes on the way, cuts in government spending, and a propensity for households to save rather than spend the upturn when it comes may disappoint. As I used to say about the cheese plate in my local hotel 'there is less to this tham meets the eye'.