Economic data for the first quarter of 2025 indicates a potential contraction in U.S. gross domestic product (GDP), according to an estimate from the Federal Reserve Bank of Atlanta.
The bank’s GDPNow model, which tracks real-time economic data, currently forecasts a 1.5% decline in GDP for the January–March period. This represents a significant revision from earlier estimates, which had suggested a 2.3% growth rate prior to the latest consumer spending and trade data.
The revision follows recent economic reports showing lower-than-expected consumer spending in January, which was affected by adverse weather conditions, as well as weaker export figures. These factors contributed to the downward adjustment in GDP projections.
While the GDPNow model can be volatile early in the quarter and tends to become more reliable as additional data is incorporated, the estimate aligns with other economic indicators suggesting a slowdown in growth.
Economist Mohamed El-Erian, chief economic advisor at Allianz, described the forecast as “sobering” while acknowledging the inherent volatility of real-time economic models.
The GDP estimate had initially been as high as 3.9% growth in early February but has since declined as new data became available. On Friday, the U.S. Commerce Department reported that personal spending fell 0.2% in January, missing market expectations of a 0.1% increase. After adjusting for inflation, spending dropped 0.5%, contributing to the downward revision in GDP growth. Additionally, net exports, which measure the difference between exports and imports, saw a significant decline in their contribution to GDP calculations.
The revised forecast comes amid other indicators of potential economic challenges, including declining consumer confidence and rising concerns about inflation. The Commerce Department also reported a decrease in the core personal consumption expenditures (PCE) price index, a key inflation measure used by the Federal Reserve, which fell to 2.6% in January, down from 2.9% in December.
Labor market data released this week also showed an increase in initial unemployment claims, reaching levels last seen in early October. Meanwhile, financial markets have reflected expectations of slower growth, with the 3-month Treasury yield rising above the 10-year note, a trend historically associated with recession signals over a 12- to 18-month horizon.
Stock markets have experienced fluctuations in response to economic uncertainty. As of early March, the Dow Jones Industrial Average is up 2% for the year, though market volatility remains high.
Market analysts have been adjusting their expectations regarding Federal Reserve policy, with some traders now anticipating multiple interest rate cuts in 2025. As of Friday, futures markets reflected an 80% probability of a quarter-percentage-point rate cut in June, with expectations for a total of three rate cuts by the end of the year.
While economic conditions remain uncertain, analysts will continue monitoring key indicators to assess the broader trajectory of U.S. economic growth in the months ahead.
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