Monthly Economic Outlook

With the partial federal government shutdown behind us, attention is now focused on its impact to overall economic growth. Economic indicators in the third quarter and early reports for fourth quarter have been stronger than we initially expected. However, we suspect that while economic releases have been better than consensus estimates thus far, the details suggest underlying momentum in the economy is unchanged. U.S. economic activity increased at a 2.8 percent pace in the third quarter, but much of the gain was due to an outsized increase in inventories. However, real final sales, which exclude inventories, moderated to a 2.0 percent pace. The gain in inventories sets the stage for a slower pace of growth in the fourth quarter. We now expect real GDP in the fourth quarter to increase at only a 1.8 percent pace.