The U.S. economy is on track to expand at a 4.0 percent annualized pace in the third quarter with inventory investment contributing 1.12 percentage points to growth, the Atlanta Federal Reserve's GDP Now forecast model showed on Thursday.
Last Friday, the government said its first reading on the gross domestic product in the second quarter was a 2.6 percent growth pace, which was 0.2 point below Atlanta Fed's final estimate.
Investors are also keeping an eye on economic data for clues on the health of the economy ahead of the keenly awaited monthly payrolls data on Friday.
Meanwhile, Labor Department data showed weekly jobless claims fell last week, pointing to a tightening labor market, while a report from the Institute for Supply Management showed its non-manufacturing index fell to 53.9 last month from 57.4 in June.
The number of Americans filing for unemployment benefits fell last week, pointing to a tightening labor market that likely keeps the Federal Reserve on course to announce plans next month to start reducing its massive bond portfolio.
Labor market strength was also underscored by another report on Thursday showing U.S.-based employers last month announced the fewest job cuts in eight months. But a moderation in services sector activity to an 11-month low in July put a wrinkle in the brightening economic outlook.
The services sector accounts for more than two-thirds of the U.S. economy and analysts worry that the slowdown, if sustained, could keep inflation tame.
"The services economy is cooling, which makes the Fed's goal of 2 percent inflation a little harder to achieve," said Chris Rupkey, chief economist at MUFG in New York. "But with the labor market tight, the Fed can continue mopping up the stimulus provided to fight the financial crisis and recession."
Initial claims for state unemployment benefits decreased 5,000 to a seasonally adjusted 240,000 for the week ended July29, the Labor Department said. Economists had forecast claims falling to 242,000.
Claims have now been below 300,000, a threshold associated with a healthy labor market, for 126 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is near full employment, with the jobless rate at 4.4 percent.