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Lookahead to US Q3 GDP

The U.S. dollar has been gaining ground against other majors on mounting speculation the Fed's bond buying program may not be as aggressive as markets had initially priced in.

The focus now is squarely on U.S. third quarter gross domestic product due out Friday. Expectations for growth appear to have crept up, with consensus forecasts putting the first estimate of third quarter GDP at 2 percent. That would be a slight improvement from the 1.7 percent pace of annualized growth seen in the second quarter of this year, but would still be far below the 3.7 percent rate of growth recorded in the first quarter.

Vacant Home
Vacant Home

Analysts say the sluggish housing market is a major reason why growth also remains sluggish. Investment in the real estate sector is seen as having pulled back in the third quarter as stimulus measures aimed at reviving the sector expired.

Trade data out of the U.S. Commerce Department last week fueled speculation that trade will prove to be a drag on growth as imports continue to outweigh exports. The monthly U.S. trade deficit expanded 8.8 percent in August to $46.3 billion. That was up from $42.6 billion in July.

Imports rose 2.1 percent to $200.2 billion, reversing a 2.1 percent decline in July. Exports rose just 0.2 percent to $153.9 billion in August after a 2 percent gain in the previous month. The deficit for the year now totals $334.9 billion, up from $235 billion in the same period in 2009.

In a recent research note, economists at IHS Global Insight predicted that foreign trade would drag down GDP as imports continue to overshadow exports.

"The trade drag should be roughly offset by another surge in inventory accumulation, partly reflecting rising imports," they added. "Overall, the report should show the economy remaining on a sluggish growth path, giving the Fed no reason to change its mind about the quantitative easing that seems on the way on November 3."

But here's one that may surprise you: Consumer spending is expected to be a key contributor to GDP. Consumption is seen to be rising 2.4 percent in the third quarter from 2.2 percent in the second quarter. That would be the strongest pace of consumption since the start of the global financial crisis. But Mark Daniell, Chairman at the Cuscaden Group, says don't expect much more from the consumer.

“The American consumer is caught between two negative factors – wages going down, housing prices going down – and prices of food and other things going up. So I don’t think we’re going to see a big pop in the economy for some time to come."

David Katz of Weiser Capital Management offers a very different take.

“If I were to take a bet, I would say that we’re most likely going to hit or exceed that 2 percent for GDP. I think with corporate profits rising and markets feeling strong, we’re going to see that growth out of GDP in the third quarter.” Click here to watch the full video.

Our viewers on CNBC dot com also shared their views.

  • 25 percent of you believed third quarter GDP would be inline with the average forecast of 2 percent.
  • 40 percent of you said third quarter GDP would miss.
  • 35 percent said third quarter GDP would come in above 2 percent.

The U.S. Commerce department will release the advance reading of third quarter GDP on Friday at 8.30 am Eastern Time.

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