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US economy likely slowed by hurricanes in third quarter

Workmen from a road construction crew guide a road milling machine in Brooklyn, New York.

Robert Nickelsberg | Getty Images

Workmen from a road construction crew guide a road milling machine in Brooklyn, New York.

U.S. economic growth probably slowed in the third quarter as hurricanes Harvey and Irma restrained consumer spending and undercut construction activity, but underlying momentum likely remained strong amid robust business investment on equipment.

According to a Reuters survey of economists, gross domestic product likely increased at a 2.5 percent annual rate in the July-September period after a brisk 3.1 percent pace in the second quarter.

The Commerce Department will publish its first estimate of third-quarter GDP growth on Friday at 8:30 a.m. ET. Without the hurricane-related disruptions, economists say third-quarter GDP growth would have either matched or beat the pace set in the April-June quarter.

“Despite the temporary disruption to construction and consumer spending that will be visible in the third quarter data, the real takeaway from the report will be how resilient overall U.S. GDP growth continues to be,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

Economists estimate that Harvey and Irma, which devastated parts of Texas and Florida, chopped off at least one percentage point from third-quarter GDP growth. With post-hurricane labor market, retail sales and industrial production data already showing a rebound in activity, Friday’s report will probably have no impact on monetary policy in the near term.

Federal Reserve Chair Janet Yellen cautioned last month that economic growth in the third quarter “will be held down” by the severe disruptions caused by the hurricanes.

The U.S. central bank is expected to increase interest rates for a third time this year in December.

The economic recovery since the 2007-2009 recession is now in its eighth year and showing little signs of fatigue. The economy is being powered by a tightening labor market, which has largely maintained a strong performance that started during former President Barack Obama’s first term.

Though U.S. stocks have risen in anticipation of President Donald Trump’s tax reform, the administration has yet to enact any significant new economic policies. Trump wants big tax cuts and fewer regulations to boost annual GDP growth to 3 percent.

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