Preview: Unemployment, disinflation to keep US GDP growth muted

The U.S. economic growth is expected to remain sluggish over the next couple of years, as inflation heads towards zero and unemployment remains high.

Official U.S. GDP figures are due on Tuesday, along with sales information of existing homes.

The economy is expected to have grown about 2.4 percent in the final estimate for the third quarter and 2.3 percent in 2011, according to economists polled by Reuters.

The National Association of Business Economics (NABE) expects growth of 2.6 percent in 2011, while unemployment is expected to be at 9 percent and modest consumer spending.

Projections for real GDP growth remain sub-par through the first quarter of 2011, but accelerate gradually through the forecast period. For next year as a whole, GDP growth is expected to be moderate, the report by NABE said.

The U.S. Federal Reserve announced a second round of quantitative easing in the first week of November, amidst much criticism. However, the QE2, as it is popularly known, has not seemed to have helped the economy.

QE2 is likely to have a negligible impact on economic activity or inflation. The $600 billion of Treasury purchases is simply too small and the hysterical response to its announcement suggests the Fed will find it politically difficult to expand the program at a later date, Capital Economics said in a note.

The firm expects consumption, which is an important part of GDP growth, to also remain weak due to high unemployment and modest gains in real incomes.

Unemployment rate has remained high, hovering around 9.6 percent for the past few months. Though private employment figures have risen, the overall picture still remains a cause of concern.

Eric Rosenbaum, Boston Fed's Chairman, defended the QE2 last week and said it is expected to help add about 700,000 jobs by 2012, reducing the unemployment rate by half a percentage point.

Wells Fargo Capital expects third quarter real GDP to be revised up to 2.2 percent from the advance 2 percent reading, mainly driven by a bigger boost from every inventory investment and a smaller drag from trade balance.

However, fiscal policy remains unusually uncertain and is unlikely to promote economic growth in a major way in the coming years and may actually turn into a slight drag on growth next year, Wells Fargo said in a note.

Inflation continues to be a concern for economic growth. The QE2 has also weakened the dollar further against other currencies.

Capital Economics expects the inflation to continue downwards to zero.

There is now a great than 50 percent chance that underlying inflation will turn negative within the next two years, the firm said.

Core inflation during October rose only 0.6 percent - the smallest increase seen on record. The overall consumer price index rose 4.6 percent from September, mainly driven by higher fuel prices.

Tuesday's figures will help determine how effective and necessary the QE2 was, and if the Fed will utilize the entire $600 billion allotted to buy bonds.