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MNI DATA PREVIEW: Storm Uncertainty Clouds GDP Forecast

By Sara Haire and Holly Stokes
     -Median forecast for third quarter advance GDP is +2.7%, but has range of
+1.9% to +3.3% due to uncertainty from hurricanes.
-Some upside risk, given above 3% growth amidst 2004 and 2005 hurricane seasons,
and history of estimates coming in at or below the third quarter advance GDP
report in the last three years. 
-Expecting gains from inventory build up, business investment, and trade, but
forecasting a fall in residential investment.
-Analysts are divided on contributions from consumer spending, with many
questioning if a boost from auto sales will be enough to offset consumer
spending's slow start in the quarter coupled with the lost personal income and
spending during hurricanes.
-Uncertainty on forecast for government spending, expectations for rise on FEMA
spending vs construction spending data that shows decline in government
investment in August.
     WASHINGTON (MNI)- Expectations for Friday's third quarter advance GDP
report vary from a 1.9% gain to 3.3% rise, with the median landing on a 2.7%
increase, based on an MNI survey of analysts. 
     The chain price index is expected to post a 1.8% gain, with a narrower
range of up 1.5% to up 2.0%, following a 1.0% rise in the second quarter.
     This diverse range is due to the uncertainty of hurricane effects, but
analysts can agree that the hurricanes will cause at least a slight drag on
headline GDP. 
     Analysts, such as BMO, expect construction and trade to be impacted by
supply disruptions and port closures. However, Barclays notes that most
indicators rebounded strongly in September, which suggests a faster return to
normal levels and potentially a smaller disruption to GDP than some anticipate. 
     Despite concerns for a hurricane drag, BMO notes that there is an upside
risk, given that GDP actually strengthened and topped 3% during the strong
hurricane seasons of 2004 and 2005. However, even if GDP comes in at the softer
2.7% forecast, coupled with second quarter's 3.1% gain, this would still be the
best two consecutive quarters for GDP growth since the first half of 2015. 
     In September of 2016, analysts forecasted a gain of 2.6% for the advance
report for 3Q, but missed when the report saw a rise of 2.9%. In September 2014,
analysts again underestimated at +3.1%, with the actual registering a 3.5% gain.
However, in September of 2015, analysts were dead on with an expected 1.5% rise.
     Given the recent history of coming in right at or below the 3Q advance
report's estimate, some analysts low-balling headline GDP could be surprised
with a higher than expected reading.
     Gains are expected to come from inventory build up, business investment,
and trade. 
     After two quarters of soft inventory gains, analysts expect that business
inventories rebuilt significantly - contributing anywhere between 0.3 to 1.6pp
to the GDP growth. However, CIBC cautions that inventories may have suffered
from hurricane disruptions, and that this upswing could be delayed until the
fourth quarter. CIBC could be right considering Thursday's advance wholesale
inventories for September saw a positive 0.3%, while retail inventories fell
1.0% to end the quarter.
     Last quarter, business investment on equipment and software increased 8.8%,
and many analysts expect this growth to continue given the 2.2% rise in durable
new orders reported Wednesday. Credit Suisse speculates that equipment spending
could have accelerated to a three year high of 11%. However, analysts note that
soft business spending due to hurricane disruption to construction could
partially offset this rise. 
     While the advance estimate of US trade in goods for September does show a
modest widening, most analysts remain confident that the narrowing seen in this
quarter's trade balance reports should amount to a moderate boost to GDP growth.
Amherst Pierpont agrees that net exports should support third quarter growth,
but warns that October could see a flood of unusually heavy Christmas retail
     While there is a general consensus on gains from inventories, business
investment, and trade, uncertainty lingers on how personal consumption will
factor into GDP. Analysts such as Barclays and CIBC expect that strong vehicle
sales, driven by replacements to hurricane damaged cars, will lift consumer
     However, some analysts don't think auto sales will be enough to boost
consumer spending, causing a muted effect on GDP. Analysts attribute this
potential drag to a slow start in the quarter coupled with lost personal income
and spending during the hurricanes. 
     Government spending is another source of disagreement amongst analysts. BMO
argues that it should post a healthy gain from storm-related recovery efforts.
However, Capital Economics contends that third quarter construction spending
reports show a large decline in government investment, which will create a net
drag to growth. 
     In addition to these possibly weak readings, analysts generally agree on
expectations for a decline in residential investment. Bank of the West
speculates that the significant drop in housing starts for September will result
in more than a 7% drop for third quarter residential investment. Morgan Stanley
explains that constraints on home building have resulted in a lack of supply,
which slows down home sales.
     Contradicting Morgan Stanley's prediction of a slow down of new home sales,
the surge of 667,000 pushed the months' supply down, but the supply on the
market was unchanged. This could mean that as people begin rebuilding their
homes, material costs will continue to rise due to limited supply, potentially
forcing residential investment to rise into fourth quarter.  
     BMO believes that after hurricane drags and recovery effort boosts, the
economy should grow at a 2.25% pace, which is the average rate of the nine year
expansion. However, they caution that there will be several policy factors which
could present hurdles to growth, including tax reform, budget resolutions, the
debt ceiling, and trade protectionism - all of which could jeopardize consumer
spending and business investment via falling confidence levels. 
--MNI Washington Bureau; +1 202-371-2121; email:
--MNI Washington Bureau; +1 212-800-8517; email:

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