Atlanta Fed predicts negative 1.5 percent GDP growth in first quarter

The Atlanta Federal Reserve is projecting a contraction of the nation's gross domestic product (GDP) of 1.5 percent in the first quarter, flashing a warning sign for the U.S. economy.

The projection is a significant shift for the Atlanta Fed over the last few weeks that comes a little more than a month after Presiden Trump took office.

The Atlanta Fed last week was predicting 2.3 percent positive growth for the first quarter. A month ago, it was registering 3.9 percent growth.

The Atlanta Fed’s GDPNow measure is not an official forecast but rather a running estimate of real GDP growth based on data as it comes in.

The first quarter ends at the end of March, and GDP will be officially calculated by the Commerce Department.

But the forward-looking indicator’s major drop will still be of significant concern to policymakers, economists and markets alike, especially as fourth-quarter GDP registered a strong second estimate this week.

GDP from October to December of last year came in at a healthy annualized rate of 2.3 percent, as reported by the Commerce Department on Thursday. Third-quarter growth came in at a robust 3.1 percent and second-quarter growth came in at 3 percent.

But some warning signs for the economy have been appearing in recent weeks amid macroeconomic policy uncertainties and rising inflation.

Inflation as measured in the Federal Reserve’s preferred personal consumption expenditures (PCE) price index came in at 2.5 percent annual growth on Friday, dipping by just a tenth of a percentage point after rising throughout the fall.

Personal expenditures decreased $30.7 billion, or 0.2 percent, in that report.

The consumer price index (CPI) has increased from a 2.4-percent annual increase in September to 3-percent increase in January, causing the Fed to pump the brakes on its stimulative interest rate cuts after starting them in September with a sizable half-percentage point cut.

Consumer sentiment also fell off a cliff in January as measured by the University of Michigan’s monthly survey, dropping nearly 10 percent from January.

Perhaps of more concern for economists, consumer expectations for year-ahead inflation popped to their highest levels since November 2023, rising to 4.3 percent for next January from 3.3 percent in December.

Businesses have also been expressing some frustration over a lack of economic policy certainty from the new Trump administration, which has announced and then canceled new tariffs on several different occasions, potentially rattling business investment.

“There is early evidence that current policy uncertainty is impacting consumer and business confidence,” analysts for Deutsche Bank wrote in a Thursday note to investors.

“These early signs of weakening confidence could lead the U.S. administration to adopt a more considerate approach to spending cuts and tariffs. Alternatively, the current policy sequencing may result in the market pricing a heightened risk of recession first,” they added.

A majority of CEOs polled last year by accounting firm PwC saw a recession coming within six months of October 2024.

“61 percent of respondents agree that the US economy will experience a recession in the next six months, up from 49 percent in our June 2024 survey,” PwC analysts found in last year’s survey.

This story was updated at 1:38 p.m.

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