WASHINGTON (Reuters) – U.S. financial development most likely slowed within the third quarter as hurricanes Harvey and Irma restrained shopper spending and undercut building exercise, however underlying momentum seemingly remained robust amid sturdy enterprise funding on gear.
Based on a Reuters survey of economists, gross home product seemingly elevated at a 2.5 p.c annual charge within the July-September interval after a brisk three.1 p.c tempo within the second quarter.
The Commerce Division will publish its first estimate of third-quarter GDP development on Friday at eight:30 a.m. EDT (1230 GMT). With out the hurricane-related disruptions, economists say third-quarter GDP development would have both matched or beat the tempo set within the April-June quarter.
“Regardless of the momentary disruption to building and shopper spending that might be seen within the third quarter knowledge, the actual takeaway from the report might be how resilient general U.S. GDP development continues to be,” stated Scott Anderson, chief economist at Financial institution of the West in San Francisco.
Economists estimate that Harvey and Irma, which devastated components of Texas and Florida, chopped off a minimum of one proportion level from third-quarter GDP development. With post-hurricane labor market, retail gross sales and industrial manufacturing knowledge already displaying a rebound in exercise, Friday’s report will most likely don’t have any affect on financial coverage within the close to time period.
Federal Reserve Chair Janet Yellen cautioned final month that financial development within the third quarter “might be held down” by the extreme disruptions brought on by the hurricanes.
The U.S. central financial institution is predicted to extend rates of interest for a 3rd time this yr in December.
The financial restoration because the 2007-2009 recession is now in its eighth yr and displaying little indicators of fatigue. The economic system is being powered by a tightening labor market, which has largely maintained a robust efficiency that began throughout former President Barack Obama’s first time period.
Although U.S. shares have risen in anticipation of President Donald Trump’s tax reform, the administration has but to enact any vital new financial insurance policies. Trump desires massive tax cuts and fewer rules to spice up annual GDP development to three p.c.
“The absence of any fiscal coverage change has to date neither supported nor damage the economic system and whereas any potential tax reform sooner or later may briefly raise the expansion charge to three p.c, it is not going to materially alter the economic system’s long-term development prospects,” stated Hurt Bandholz, chief U.S. economist at UniCredit Analysis in New York.
Hurricanes Harvey and Irma, which damage incomes and undercut retail gross sales in August, seemingly crimped shopper spending within the third quarter. Progress in shopper spending, which accounts for greater than two-thirds of the U.S. economic system, is forecast slowing to under a 2.5 p.c charge following a sturdy three.three p.c tempo within the second quarter.
The storms are additionally anticipated to have weighed on funding in nonresidential buildings like oil and fuel wells, which is forecast to have contracted.
Spending on homebuilding, which was already undermined by land and labor shortages, additionally most likely took successful from Harvey and Irma. Spending on residential building is forecast to have declined for a second straight quarter.
However the affect of average shopper spending and weak residential and nonresidential building funding was most likely offset by continued features in enterprise spending on gear, commerce and an acceleration in stock accumulation.
Enterprise funding on gear is predicted to have elevated for a fourth straight quarter and commerce to have contributed to GDP development three quarters in a row.
Companies seemingly boosted inventories within the third quarter in anticipation of robust demand. Economists estimate that stock funding contributed as a lot as eight-tenths of a proportion level to third-quarter GDP development.
Inventories added simply over a tenth of p.c level to development within the second quarter. Authorities funding is predicted to have rebounded after two straight quarterly declines.
Reporting by Lucia Mutikani; Modifying by Lisa Shumaker