US economic growth appears on track to record a near-4% jump in the fourth quarter, according to economists at Pantheon Macroeconomics.
Ahead of Thursday's second estimate of third-quarter gross domestic product (GDP), Pantheon has looked ahead to the final quarter of 2017 and sees compelling reasons why the US economy ought to accelerate further.
Preliminary readings saw third-quarter GDP rise at an annual rate of 3.3% and no revisions are expected to this number at Thursday's second estimate.
Moreover, some speeding up in economic growth can be expected in the fourth quarter, says Ian Shepherdson, chief economist at Pantheon. He starts with consumer activity.
"The single biggest component of GDP, consumer spending, appears to be on track for an annualised increase of about 3.5%," he says.
"November's core retail sales numbers were spectacular, and the Redbook chainstore sales data suggests that December will be good too."
Business investment is also accelerating, Shepherdson says, with Pantheon's model of real capital expenditure on equipment pointing to a 14% annualised jump.
"Putting the capex components together - allowing for a small rise in housing investment too - we reckon total fixed investment will rise at a 6% pace in the fourth quarter," he adds.
Government spending, meanwhile, is expected by Pantheon to rise at an annual rate of 2.5% in the fourth quarter.
The caveat to a growth rate of 4% in the fourth quarter, however, is the impact of falling inventories due to capacity constraints, and net foreign trade.
Therefore, Pantheon's base case scenario sees GDP continuing at an annual rate of 3%, and would mean that the US economy has grown by 3% or more for three-consecutive quarters - a feat not accomplished for 12 years.
But a higher rate, given the strong consumer response in the second half of the year, rising capex and government spending, must not be ruled out, and 4% is a very likely possibility.
"For now, though, we reckon GDP growth of 3% is a decent working assumption, though we can't rule out growth as low as 2% or as high as 4%," Shepherdson says.
In a brief look further ahead, Shepherdson believes next year's growth will be "juiced" by the tax cuts, while the Federal Reserve's continuing policy normalisation will send the signal that the economy is substantially heald and it's safe to invest in the US.