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Economic activity grew at a strong pace in the second and third quarters, according to official GDP data published by the Bureau of Economic Analysis. The party continued in Q4, based on a widely followed nowcast that projects that the robust expansion in the two previous quarters will accelerate in the government’s delayed GDP report due next month.
The Atlanta Fed’s GDPNow model is estimating that the economy increased 5.4% at an annualized rate in Q4 (as of Jan. 22). If correct, the estimate will blow past the strong 4.4% rise in Q3 and mark the strongest quarterly increase in four years.
As always, there are a number of caveats to consider in the realm of nowcasting. For starters, the GDPNow estimate has yet to show up in other estimates monitored by CapitalSpectator.com. The Atlanta Fed’s nowcast is the outlier, by a wide margin. That doesn’t mean it’s wrong. But until other nowcasts move closer to the GDPNow estimate, a degree of caution is recommended in expecting Q4 growth to accelerate.
Using the median nowcast from several models highlights a considerably slower Q4 growth rate: 2.1%. That’s still a respectable gain, but it’s a long way from 5-plus%.
On firmer ground, it’s becoming clear that the odds are low, if not nil, that a US recession started in Q4. Instead, the debate about next month’s delayed release of GDP data for the October-through-December period is whether the expansion is downshifting or picking up.
The analysis is (still) unusually tricky at the moment due to lingering effects on the economic data collection from the government shutdown in October.
Samuel Tombs, chief US economist at Pantheon Macroeconomics is among the skeptics questioning the sizzling GDPNow’s Q4 estimate, which he says is “highly questionable.” The consultancy estimates Q4 growth is substantially softer, in the 1.5% range. A key reason for doubt: some of the data during the previous quarter is still missing, and some of what has been published is questionable.
Nonetheless, a broad review of economic activity across a variety of metrics strongly suggests that the US continued to grow at a pace that minimizes recession risk. Confidently estimating the pace of growth, by contrast, is still a work in progress.