A model forecasting US gross domestic product growth is far above where most other expert forecasts see Q1.
On Feb. 1 the Atlanta Federal Reserve GDPNow model forecasted a 5.4% growth of gross domestic product (GDP) in the first quarter. The model updated its forecast to 4% on Feb. 2 and remained there on subsequent releases through Feb. 9. The model released its initial ‘nowcast’ for Q1 2018 on Jan. 29 at 4.2%. All of these forecasts are higher than some of the more bullish projections for Q1.
Many economists expect GDP growth to sit around 2.5% into 2019. The 5.4% spike in the GDPNow model is likely due to the Institute of Supply Management releasing monthly data on US manufacturing the day before the model released its forecast.
The last time the economy grew by 5.4% was nearly 15 years ago in the third quarter of 2003. If GDP growth does end up over 5%, it will be the first period to accomplish such a feat since the third quarter of 2014. President Trump promised 4% annual growth shortly after his inauguration and optimistically upped his forecast to 6% growth in December.
GDP growth rate is a major indicator of overall economic activity and can impact how small businesses anticipate business prospects. Continued profitability might fall due to a decline in sales if growth is low or stagnant. However, with such a strong forecast for Q1, small businesses may need to expand or hire new employees to keep up with growing sales.
Forecasts of GDP growth also influence investors and what they do with their money. Investors gain confidence when models forecast strong growth and higher growth forecasts may increase lending limits, while a poor outlook may lead investors to decide against investing more money in some businesses.
It’s important to note GDPNow is not an official forecast by the Federal Reserve Bank of Atlanta. It uses data from the current quarter and provides a running estimate of real GDP growth based solely on the model’s mathematical results.