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U.S. economy likely to have expanded 2 pct in Q4 2016

The U.S. Bureau of Economic Analysis is set to release its advance estimate of the fourth quarter GDP growth for the U.S. economy. The official GDP forecast of Barclays has been revised to bring it more in line with its tracking estimate that is based on the available data received in the quarter, noted Barclays in a research report.

“Our Q4 GDP tracking estimate has been tracking modestly below our official forecast for some time and, as a result, we revise our official forecast for Q4 GDP growth lower to 2.0 percent from 2.5 percent previously”, said Barclays.

Incoming data indicate towards less business investment than was expected and a bigger drag from net trade. Countering this slightly is the data that indicates towards more robust residential investment and inventory accumulation.

The advance release is expected to show that private consumption rose 2.5 percent sequentially in the December quarter, while residential investment is likely to have risen 10 percent. In the second and third quarter, residential investment was quite weak, declining 7.7 percent and 4.1 percent respectively. Therefore, even with a 10 percent annualized rebound in the fourth quarter, residential investment is expected to have risen modestly by 4.9 percent in the whole of 2016.

Looking at other components of business fixed investment, structures investment appears set to make modest gains, consistent with earlier data that imply the energy sector stabilized around mid-year, whereas intellectual property and equipment investment stay weak.

Inventory accumulation data indicates additional contribution to growth, and together with the third quarter data, give additional confirmation that the inventory destocking cycle has ended, noted Barclays. Meanwhile, recent trade data indicates towards a further widening in the goods trade deficit in the fourth quarter. This suggests a 0.7 percentage point drag on the fourth quarter growth.

“Altogether, this suggests final sales to domestic purchasers will grow at 2.5 percent q/q saar in Q4, while real GDP growth accelerates at a more modest 2.0 percent pace. We continue to forecast 2.0 percent growth in Q1 2017”, added Barclays.

At 06:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at -7.33472. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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