Monthly Economic Insights
The GDP Forecast Is Up. Here's Why, and What It Means.
While most of the recent economic news has been around the positive trend in inflation, we thought it appropriate this month to highlight another forward-looking (and positive) piece of the U.S. economic puzzle: real gross domestic product (GDP).
The growth rate of (GDP) measured by the U.S. Bureau of Economic Analysis (BEA) is a key metric of the pace of economic activity and measures the monetary value of final goods and services. For the U.S. economy, that added up to more than $25 trillion in 2022.
The GDP growth (or contraction) rate is a bellwether indicator often used as the defining sign of a recession, something that’s been whispered for months now but has yet to materialize. The definition of a recession most widely used is a sustained period of weak or negative growth in real GDP (typically defined as two consecutive negative quarters) that is accompanied by a significant rise in the unemployment rate.
Thankfully, we’re currently not even close to either one of those factors being true. In fact, the Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is now 5.8 percent, up from previous estimates of 5.0 percent.
Contributing factors include this month’s strong housing starts report from the U.S. Census Bureau and the positive industrial production report from the Federal Reserve Board of Governors. The Atlanta Fed is now forecasting third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth of 4.8 percent and 11.4 percent, respectively. (Up from 4.4 and 8.8, respectively.)
Bottom Line: Yes, interest rates are likely to rise a bit more this year, as the Fed has already signaled, but the unemployment rate remains resilient, hovering around 3.5%, and inflation has slowed over the past year, currently at 3.2% (4.7% core).
And now, with the bullish GDP predictions, many are saying the other shoe (the recession) doesn’t appear to be dropping anytime soon. While that prediction hasn’t disappeared, it’s certainly been de-emphasized over the last several months.
As most news does, it leaves us with new questions such as will the economy really accelerate in the second half of 2023 as predicted? Will the Fed stick with its current guidance of staying just under 6% on the policy rate? And finally, are the markets prepared for that kind of change?
We’ll be keeping an eye on the answers to these questions and more in the coming months. Stay tuned.
— Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for Country Club Trust Company
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