Another quarter, another bullet likely dodged for the seemingly irrepressible U.S. economy. The Commerce Department is expected to report Wednesday that gross domestic product grew at a hardy 3.1% annualized pace in the third quarter, adjusted for seasonality and inflation, according to the Dow Jones consensus forecast. If accurate, that would be 0.1 percentage point above the previous period and mark the 10th straight quarter of expansion. Along with that, the release is expected to show that inflation moved closer or perhaps even below the Federal Reserve’s 2% target. The Fed uses the personal consumption expenditures price index, included in the GDP estimate, as its primary inflation gauge. The report, then, should indicate a solid economy and easing inflation , the latter at least on a relative basis from how things looked a year ago. “The slowdown in growth that we and many others have been expecting to see for some time clearly has not yet materialized,” Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, said in a note. All good, then, right? Maybe not. “The recent strength in economic growth, however, look[s] increasingly unsustainable,” Allen added. In what may well be the most-hated economic recovery ever, worries continue to percolate about whether the U.S. can keep going on a steady diet of incessant consumer spending while credit concerns escalate and the pace of hiring appears to have slowed. On top of that, some economists are expressing concern that inflation could stoke up again next year depending on the election outcome. Allen thinks the July-through-September period will be the last of the big GDP numbers. Though he doesn’t see the economy falling off a cliff, he figures gains ahead being closer to an anemic 1.5% through 2025. “A deteriorating growth outlook will trigger a further clear loosening in the labor market, pushing up the unemployment rate faster [than] the Fed expects,” Allen wrote. “As [a] result we continue to expect the Fed to ease monetary policy further and faster than most investors and commentators currently envisage.” Another impetus for Fed policy cuts is inflation. The PCE price index grew at a 2.5% 12-month rate in the second quarter and is expected to show a step back from that pace, nudging ever closer to the Fed’s goal. In fact, Citigroup, while expecting a below-consensus 2.6% GDP pace, sees the inflation gauge hitting the 2% bogey for the quarter, a figure that could help cement a quarter-point reduction in the Fed’s benchmark lending rate when policymakers meet next week. “The elements driving disinflation have not only come from falling goods prices but also easing services inflation,” Citi economist Alice Zheng wrote. “Overall, another quarter of above-trend growth and a benign inflation reading will be welcomed by the Fed.”
