Softer GDP Growth Rate For US Is Expected In Q3

Forecasters continue to project a moderately slower increase in US economic activity for the third quarter vs. Q2, based on the average estimate for several models and economic surveys compiled by The Capital Spectator. The expected pace is strong enough to keep the economy humming, but the latest numbers suggest that next month’s preliminary Q3 data from the Bureau of Economic Analysis is on track to post a conspicuous slowdown.

The average forecast calls for a 2.3% increase in output for Q3, which reflects data from the seven recent estimates (see chart below). The outlook marks a downshift from Q2’s healthy 3.0% increase (seasonally adjusted annual rate).

The current set of Q3 predictions also reflect a modest downshift from the 2.8% average Q3 estimate published a month ago.

One factor weighing on the latest projections is the expected blowback from two recent hurricanes – Harvey and Irma – that unleashed widespread damage across several southern states.

Mark Zandi, chief economist for Moody’s Analytics, earlier this month estimated the combined price tag for both storms at $150 billion to $200 billion – an expected cost that reduced the firm’s Q3 GDP growth rate by half a point to 2.5%.

Treasury Secretary Steven Mnuchin recently said that “there clearly is going to be an impact on GDP in the short run.” He added that “we will make it up in the long run,” in part due to the economic response to the hurricane damage. “As we rebuild, that will help GDP.”

Meanwhile, today’s final update of second-quarter GDP (due at 8:30am eastern) is on track to tick up to 3.1% vs. the previous 3.0% estimate, based on’s consensus forecast.

Before the last two hurricanes took a bite out of GDP growth expectations, analysts were looking for a firmer rate of expansion in the current quarter. The implication: the storm-related setback for the US economy in Q3 is temporary.

“The US economy showed encouraging resilience in a month of hurricane disruption,” according to last week’s survey data from IHS Markit. The US Composite PMI dipped slightly in September to 54.6, a two-month low. “Although the September surveys indicated a moderation in growth of business activity, the overall rate of expansion remained robust. Historical comparisons of the PMI with GDP indicate that the surveys point to the economy growing at an annualized rate of just over 2% in the third quarter.”

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