GDP seen revised down on imports and inventories

Gross domestic product now is estimated to have grown at a 1.4 percent annual rate during the second quarter, rather than the 2.4 percent estimated in the government's first reading last month, according to a Reuters survey.

The Commerce Department is due to release its second estimate of GDP at 8:30 a.m. GDP, which measures total goods and services output within U.S. borders, grew at a much more robust 3.7 percent rate in the first quarter.

The GDP data follows a series of disappointing reports on the housing sales this week and will add pressure on the Obama administration, which already is worried about a slowing economy ahead of November congressional elections.

A White House official said on Thursday that a vacationing President Barack Obama was watching the economic data closely and may address it publicly.

You can expect you will see the president talking about it soon, White House spokesman Bill Burton said. I don't have a specific date for it, though.

Imports of goods and services in June grew to their highest level since October 2008, leaving a much wider trade deficit than the government had assumed in its advance estimates last month for second-quarter growth .

Economists are at a loss to explain the jump in imports, which occurred at a time when domestic demand is very anemic. Import growth is usually associated with strength in underlying domestic demand.

The jump in imports is out of proportion with the growth in domestic demand. It's a fairly weak recovery but we get the biggest drag from external trade, it just doesn't make sense, said Paul Ashworth, a senior U.S. economist at Capital Economics in Toronto.

The government previously estimated the trade gap had sliced 2.8 percentage points from GDP in the second quarter, but economists reckon the revisions on Friday could show a drag of as much as 3.5 percentage points.

The slackening economic recovery is a nightmare for the Obama administration and the Democratic Party two months away from crucial mid-term elections that could shift the balance of power in Congress in favor of Republicans.

A Reuters/Ipsos poll this week found Obama's approval rating at 45 percent, overtaken for the first time by a 52 percent disapproval rating.

The recovery from the worst economic downturn since the Great Depression had been largely fueled by a $862 billion government stimulus package and businesses rebuilding inventories from record low levels.

The government is expected to report the contribution to growth from inventories in the second quarter was much smaller than the 1.05 percentage points it estimated last month.

Growth excluding inventories is expected to have increased at a 0.9 percent rate, instead of 1.3 percent.

Still, many economists remain unconvinced the economy is close to tipping back into recession.

There is no doubt we are losing momentum in the economic recovery, said Robert Dye, senior economist at PNC Financial Services in Pittsburgh. But if we define recession as two or more consecutive declining quarters of GDP, I think we are not going to go there.

We are going to see a pattern where we may have declining GDP in one quarter followed by smaller gains in the next quarter, bouncing along the bottom as it were, Dye said.

Business spending is expected to be revised up, although investment in structures could be pared back. While businesses have been reluctant to hire new workers, they have been using their cash piles to splurge on equipment and software.

The GDP report is expected to show corporate profits rose 4.2 percent in the second quarter after increasing 5.8 percent in the first three months of the year.

Productivity slowed last quarter as stretched work forces led to the biggest increase in hours worked in more than four years, said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania.

This should put a little pressure on margins, which have expanded strikingly, and cause profit growth to slow considerably after a three-quarter stretch in which growth averaged close to 10 percent.

Consumer spending growth, which has been dampened by high unemployment, was likely to be left unchanged at the 1.6 percent rate reported last month, economists said.

(Editing by Leslie Adler)