The U.S. economy, red-hot just a few months ago, may be cooling off faster than most people were expecting, according to one measure.
The Federal Reserve Bank of Atlanta, one of a dozen regional banks that make up the Federal Reserve, on Tuesday cut its forecast for third-quarter real GDP growth to 1.3% from 2.3% last Friday and more than 6% at the end of July, as the chart below shows. The Atlanta Fed’s estimate, called GDPNow, is a real-time GDP tracker that updates each time a new economic report is released, usually several times a week.
This year started out with an economic bang, as real GDP grew at an annual rate of 6.3% in the first quarter and 6.6% in the second, but the fast-spreading delta variant of the coronavirus slowed things down over the summer, keeping some people from traveling, going back to the office, and spending on services. Many economists have noted the slowdown, but they’re still expecting third-quarter growth of up to 5.5%, far higher than the latest GDPNow prediction.
The Atlanta Fed updated its latest forecast after Tuesday morning’s August trade data and the Institute for Supply Management’s Services Index for September were released. The trade deficit widened to a record $73.3 billion, with exports rising by $1 billion from July, to $213.7 billion, but lagging imports of $287 billion, up $4 billion from the previous month. Meanwhile, the ISM Services index edged up 0.2 percentage point to 61.9% from August.
The Atlanta Fed said it lowered its prediction for growth in third-quarter real personal spending and domestic business investment and the contribution to GDP from exports.
If the GDPNow forecast is correct, it trails, by far, more bullish estimates by Wall Street economists, including Goldman Sachs, one of the firms with an estimate on the lower end. Goldman recently cut its prediction twice in three weeks, and it now sits at 3.5%. The Bureau of Economic Analysis is slated to report third-quarter GDP on Oct. 28.
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