GDP Preview: What We’re Watching in Friday’s Release

Investors’ first look at third-quarter gross domestic product (GDP) will be released on Friday, and the consensus points to another quarter of solid gains in output.

The U.S economy has been on solid footing for a while, but the underlying detail provides a rough guide to how certain factors have impacted growth. As shown in the LPL Chart of the Day, third-quarter GDP was likely influenced most by increased consumer spending, gains in private inventories, and a meaningful drop in net exports.

Growth was Likely Resilient in Third Quarter

“With the exception of housing and autos, U.S. economic activity remains very strong,” said LPL Chief Investment Strategist John Lynch. “While we may see some impact from trade on economic data, we still think the impact of fiscal policy continues to be much larger.”

We expect consumer spending, which typically accounts for about 70% of GDP, was a primary driver of economic growth last quarter. Personal spending has grown at its fastest pace in years, fueled by healthy and confident U.S. consumers who have benefitted from looser tax policy and modestly accelerating wages.

However, third-quarter GDP may also be heavily influenced by two highly volatile components: inventories and net exports. While companies increased inventories to keep up with growing consumer demand, the uptick is partially due to supply chain disruptions, which could eventually weigh on growth. U.S. exports have now dropped for three straight months as the economic fallout from the U.S.-China trade dispute creeps into global trade.

Overall, we expect more of the same from the third quarter and looking forward—a solid pace of economic growth accompanied by gradual interest rate increases.

For more details on what we’ll be watching in the third-quarter GDP release, check out this week’s Weekly Economic Commentary.

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