GDP growth in the third quarter is widely expected to decelerate in the government’s “advance” estimate that’s due at the end of this month. Part of the projected slowdown is due to the temporary effects of hurricanes, according to analysts.
Forecasters are looking for a 2.4% increase in output for Q3, based on the average estimate for several models and economic surveys compiled by The Capital Spectator. The projection is well below Q2’s strong 3.1% increase.
The weaker trend looks worrisome, but economists anticipate that growth will bounce back as the weather-related headwind fades.
“While the effects of the hurricanes on the U.S. economy are quite noticeable in the short term, history suggests that the longer-term effects will be modest and that aggregate economic activity will recover quickly,” Fed Chair Janet Yellen said on Sunday. “My best guess is that these soft readings will not persist, and with the ongoing strengthening of labor markets, I expect inflation to move higher next year,” she advised at the Group of Thirty’s Annual International Banking Seminar in Washington.
San Francisco Fed President John Williams has an upbeat outlook, too. In an interview with The New York Times on Monday, he said that a healthy pace of growth is still a prudent forecast. “If you look at a dart board view of our objectives, where to the right and the left is unemployment relative to the normal rate, and up and down is inflation relative to 2 percent, we’re not right at the bull’s-eye but we’re about as close to that bull’s-eye as we’ve ever been. This is pretty good.”
CNBC last week noted that recently published indicators suggest that the US macro trend will remain positive for the foreseeable future. The labor market is an exception – job growth was unusually weak in September, but many economists predict that hiring will revive in October as the macro trauma from the hurricanes in late-August and early September diminish.
Note, too, that recession risk remains low, based on recent data. The encouraging profile offers more support for thinking that a downshift in Q3 GDP growth isn’t an early warning for the economic outlook.
The view from Main Street finds no reason to disagree these days. The University of Michigan’s preliminary estimate of consumer sentiment for October surged to its highest reading since 2004.
“The October gain was broadly shared, occurring among all age and income subgroups and across all partisan viewpoints,” noted Richard Curtin, the chief economist for the UoM’s survey. “The data indicate a robust outlook for consumer spending that extends the current expansion to at least mid-2018, which would mark the 2nd longest expansion since the mid 1800’s.”