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Ahead of the Bell: Economy-GDP

Posted August 30

— The Commerce Department issues its second look at the performance of the overall economy for the April-June quarter. The report will be released at 8:30 a.m. EDT Wednesday.

WHAT'S EXPECTED: The expectation is that the overall economy, as measured by the gross domestic product, grew at an annual rate of 2.7 percent in the second quarter, according to the consensus of economists surveyed by data firm FactSet.

WHAT'S THE TREND: The government's first estimate of GDP in the second quarter, issued a month ago, was growth at a 2.6 percent annual rate. That was an improvement from the lackluster 1.2 percent rate in the first quarter.

While the consensus view was for a slight upward boost to GDP, some private economists were even more optimistic, forecasting growth would climb to around 3 percent with Wednesday's revised figure.

The government provides three estimates each quarter for GDP, the economy's total output of goods and services.

Even with the expected upward revision, GDP growth is still falling short of the optimistic goals President Donald Trump hopes to achieve through tax cuts, regulatory relief and tougher enforcement of trade agreements.

During last year's presidential campaign, Trump repeatedly attacked the Obama administration's economic record. GDP has averaged annual growth rates of just 2.2 percent in this recovery, which is now the third longest in U.S. history. Trump submitted a budget to Congress in May that was based on achieving growth rates in coming years of 3 percent on a sustained basis.

Private economists believe that forecast is highly optimistic. The nonpartisan Congressional Budget Office sees growth averaging 1.9 percent over the next decade, a forecast much closer to estimates made by private economists.

Analysts are looking for a pickup in activity for the second half of this year and an even faster growth in 2018 if Trump is successful in getting parts of his economic program passed by Congress.

Mark Zandi, chief economist at Moody's Analytics, said he expected growth for the current quarter of 2.9 percent and a 2.6 percent gain for the fourth quarter.

For the whole year, Zandi forecasts GDP will grow 2.1 percent. That would mark an improvement over last year when the economy grew a meager 1.5 percent, the poorest showing since the recession year of 2009 when GDP shrank by 2.9 percent,

Economists are not looking for Hurricane Harvey to make much of an impact on economic growth, believing that a spike in the cost of gasoline and other energy prices will be short-lived as refineries along the Texas Gulf Coast resume operations quickly.

Zandi is forecasting that growth in 2018 will be an even stronger 2.8 percent. But he said 0.4 percentage point of that forecast reflects an assumption that the Trump administration will win a tax cut package that will take effect in early 2018 and the economy will also be boosted by higher spending on the military and infrastructure projects.

If Trump's program remains deadlocked in Congress, Zandi said he will trim his GDP forecast for next year to 2.4 percent, still an improvement over the past three years, reflecting improved conditions around the world.

"For the first time since the Great Recession ended in mid-2009, the economy is not facing any significant headwinds," Zandi said. "We had a major debt deleveraging after the housing collapse, then we had the European debt crisis and that was followed by a collapse in global energy and other commodity prices and then the Chinese economy stumbled," Zandi said. "''All of those things weighed on U.S. growth."

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