On Friday, the GDPNow model from the Atlanta Fed reduced its prediction for the U.S. economy to a 1.5% annual shrinkage. Since the first quarter of 2022, this would be the economy’s first quarterly contraction.
The slower growth coincides with an increase in speculation about a potential recession in the US economy.
“Overall economic growth is in the process of slowing down at an alarming rate,” professor of economics Brian Bethune of Boston College stated.
The Atlanta Fed’s prediction of a 2.3% expansion rate was lowered after the U.S. government revealed a much larger January trade imbalance. Economists think that President Donald Trump’s threats to impose significant additional tariffs on China, Mexico, Canada, and other trading partners are the reason for the spike in imports since late last year.
The deficit will be far greater than it was in the fourth quarter due to its high starting position.
It’s too early to measure the effect on headline growth, according to Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. Writing a forecast “is a fool’s errand given the lack of data on goods trade for February and March or any [first-quarter] data for services trade,” Allen wrote in a letter to clients.
Until the government issues its official estimate of first-quarter growth on April 30, the Atlanta Fed will keep revising its forecast based on new economic data.
Businesses and consumers are growing more apprehensive about the economic future, according to recent survey data. To evaluate if the uneasiness results in less investment and expenditure, economists have stated that they will rigorously examine hard data on company and consumer spending.
After accounting for inflation, consumer spending fell by a steep 0.5% in January. The decline was the biggest in three years. The February statistics will be crucial to determining whether the slump continues, though, as analysts pointed out that this decline followed an extraordinarily robust fourth quarter.
According to Bethune’s email, in the past, distinct rises in policy uncertainty have predicted notable slowdowns in economic growth.
According to Barclays economist Ajay Rajadhyaksha, investors will need to consider the possibility that the U.S. economy is on the verge of a recession if the barrage of bad news intensifies, especially from the February jobs data next Friday.
According to him, this prediction appeared “incredibly unlikely at the time of the election,”
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Although these metrics have not been updated with the most recent trade data, a another GDP tracker from the New York Fed predicts growth of 3% in the first quarter and another from the Dallas Fed predicts growth of 2.4%.
Austan Goolsbee, the president of the Chicago Fed, responded that the decline in the Atlanta Fed’s tracker was “worth keeping an eye on.”
“But we’ve had strong growth,” Goolsbee stated during a CNBC interview. “The labor market has been quite strong and has steadied at what appears to be full employment. Therefore, I would be hesitant to declare it a trend unless we get more observations in that manner.
