What to expect from third quarter US GDP

This is a very early look at Q3 with much of the September data still not published. It will be revised 4-5 times when it's all said and done yet the market loves to react like it's the final word.

The uncertainty about growth is reflected in various estimates. Economists have it anywhere from 2.4% (Wrightson ICAP) to 2.6% (JPMorgan) to 4.1% (Pantheon & RBC) but the consensus is 3.3%, which is a very good quarter even if it's a slowdown from 4.2% in Q2.

Daiwa is the second-best US GDP forecaster according to Bloomberg's rankings and they see growth at 3.5%.

"Available data suggest that economic growth in the third quarter was brisk, although much of the advance, possibly in excess of two percentage points, seemed to be the result of inventory investment. Final sales (GDP less inventory investment) probably grew less than 2.0%, but much of the softness was concentrated in net exports, which may have been temporarily weakened by responses to actual and potential tariffs," they wrote in a client note.

Barclays is also weary about softness in exports as the unusual strength from Q2 reverses:

"For the advance estimate of Q3 GDP, we forecast growth at 3.5% q/q saar. We expect this to be driven by private consumption spending (3.0% q/q) and government spending, reflecting the ongoing fiscal stimulus. Taken together, our forecasts suggest solid momentum in domestic activity. We also expect a substantial positive contribution from inventories, which is likely to be partially offset by a drag from net exports," they write.

Inventories will be a key focus but so will be measures of inflation, according to TD:

"We expect a 3.7% advance in Q3 GDP, reflecting solid consumer spending (3.3%) and an outsized boost from inventories. Aside from those categories, however, details are more downbeat with muted business investment and a significant drag from trade. Also in the release is core PCE, which we expect to rise 1.6% q/q, implying a 2.0% y/ y print for September," TD writes.

There is also wild divergence in the two main GDP trackers from the Federal Reserve. The New York Fed is forecasting growth at just 2.13% while the Atlanta Fed tracker is at 3.6%, which is the low since it started tracking Q3 in August but still far above the NY Fed measure.