Data suggests the U.S. economy in the third quarter will out perform the previous one, according to research notes today from Barclays Capital. In the second quarter of 2010, GDP slowed to an annual rate of 1.6%, slightly better than what analysts projected. According to BarCap, a narrowed trade deficit in July, stronger-than-expected business inventories, and moderating growth in manufacturing activity suggest more GDP growth in the third quarter. Broader price pressures in the Producer Price Index (PPI) showed that core consumer price inflation is close to a bottom in the third quarter and should even begin to increase through the end of the year. BarCap analysts believe should the Federal Reserve act to further stimulate the economy, a measured, incremental pace of asset purchases would be better than a "shock and awe" approach. James Bullard, president of Federal Reserve Bank of St. Louis made the same suggestion in August. "Incremental approach may be justified," according to the report. "We see initiating smaller-scale purchases which are then adjusted over time based on market conditions as having a high degree of appeal to policymakers at this stage." But analysts admitted this strategy may not have such an upfront impact because it relies on expectations of eventual purchases. While "shock and awe" or the incremental purchases could both keep borrowing rates down, analysts suggest that neither would truly address the inability of many households to access historically low interest rates. Solving that issue would require more coordination than appears likely. From the investment bank's structured finance research department, BarCap analysts say that current market sentiment seems to suggest that the main threat to CMBS valuations – the risk of a double-dip recession – has receded. Write to Jon Prior.