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 Gross domestic product probably increased at a 1.6 percent annual
rate after expanding at a 3.9 percent clip in the second quarter,
according to a Reuters survey of economists. But GDP could print
slightly higher after data on Wednesday showed a
smaller-than-expected goods trade deficit in September.
The Commerce Department will release its snapshot of third-quarter
GDP on Thursday at 08:30 a.m. (1230 GMT).
Given that the inventory drag is probably temporary, economists
urged caution against reading too much into the growth deceleration.
"It's not going to look pretty, but I don't think the policy
implications from the Fed's perspective are overly significant. They
are going to look through the weakness in GDP because of the weight
from inventories," said Ryan Sweet, a senior economist at Moody's
Analytics in Westchester, Pennsylvania.
The Fed on Wednesday described the economy as expanding at a
"moderate" pace and put a December rate hike on the table with a
direct reference to its next policy meeting. The U.S. central bank
has kept benchmark overnight interest rates near zero since December
2008.
The economy has struggled to sustain a faster pace of growth since
the end of the 2007-2009 recession, with average yearly growth
failing to break above 2.5 percent.
In the third quarter, businesses are forecast to have accumulated
between $41 billion and $57 billion worth of inventory, down sharply
from $113.5 billion in the second quarter. Economists estimate the
small inventory build will slice off at least 1.5 percentage points
from third-quarter GDP growth.
Trade was seen as another impediment to growth, although a small
one, given the strong dollar's dampening impact on exports and
stimulative effect on imports. Trade is forecast to subtract at
least one-tenth of a percentage point from GDP growth.
CONSUMERS TO THE RESCUE
But the blow from inventories and trade was likely blunted by
bullish consumers, who are getting a tailwind from cheaper gasoline,
and firming housing and labor markets.
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Consumer spending, which accounts for more than two-thirds of U.S.
economic activity, is forecast growing at around a 3.4 percent rate
after a expanding at a 3.6 percent pace in the second quarter. A
measure of private domestic demand, which excludes trade,
inventories and government spending, is forecast to have risen at a
sturdy pace.
"The economy kept its strong underlying momentum throughout the
summer. This implies that the weakness in the third quarter will
prove to be a temporary breather and that growth will again be
perceptively stronger in the current quarter," said Harm Bandholz,
chief U.S. economist at UniCredit Research in New York.
Ongoing spending cuts in the energy sector are also expected to have
undermined growth. A plunge in oil prices has prompted oil field
companies like Schlumberger and Halliburton to slash investment.
Schlumberger said this month it did not expect a recovery in demand
before 2017 and anticipated that exploration and production spending
would fall again in 2016.
Despite strong domestic demand, inflation likely remained muted
because of dollar strength and cheaper gasoline. A price index in
the report that strips out food and energy costs is expected to have
increased at a 1.4 percent rate, slowing from a 1.9 percent pace in
the second quarter.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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