U.S. economic growth likely to hold at 2.5 pct through Q1 2017, says Barclays

The advanced estimate of real GDP growth for the third quarter of the U.S. is set to release next week. The economy is expected to have expanded 2.5 percent sequentially saar in the September quarter, as compared with the first quarter’s growth of 1.4 percent, said Barclays in a research note. The Barclay’s GDP tracking estimate has stayed in quite a narrow range throughout the third quarter. This shows that the data releases for the third quarter on average have been approximately in line with projections, stated Barclays.

“Beyond Q3, we continue to expect GDP growth to hold at 2.5 percent through 17Q1 and to step down to a 2 percent pace in the final three quarters of 2017”, added Barclays.

The pace of consumption growth, as usual, is underpinning the U.S. economic growth. Even if consumption is likely to ease from rapid pace of the first quarter, at 2.5 percent, the household sector continues to be sound and consumption growth is positively contributing around 1.8 percentage points to the third quarter growth.

However, consumption is expected to add one full percentage point less to the economic growth that it did in the previous quarter. Inventory accumulation is likely to positively contribute to the economic growth, countering the slowdown of consumption. In the second quarter, contraction in inventories resulted in subtraction of 1.22 percentage points from the economic growth. However, a positive contribution of 0.7 percentage points is expected in the third quarter, according to Barclays.

“We believe that the adjustment in inventories, which weighed on growth through much of 2015 and 2016H1, is coming to an end, and we see inventories as making small positive contributions over the rest of this year”, said Barclays.

Meanwhile, residential investment is likely to shrink 4.1 percent in the third quarter. In August and September, housing starts dropped sharply. The fall in starts is totally concentrated in multifamily. This fall is likely to be for a temporary period as multifamily permits increased strongly in the third quarter. On the contrary, business structures investment is expected to rebound and grow 4.6 percent in the September quarter.

“Elsewhere, we forecast flat equipment investment (0.1 percent) and solid growth in intellectual property investment (7.0 percent).  We expect net trade to weigh modestly on headline growth (-0.2pp)”, added Barclays.