Is US Economic Growth Accelerating In Q4?

The odds still look skewed toward a softer pace of expansion for fourth-quarter GDP, but an upgraded nowcast from the Atlanta Fed hints at the possibility for something stronger.

The regional Fed bank’s GDPNow model lifted its Q4 estimate for growth on Monday to 3.2%, moderately above Q3’s 2.8%. The question is whether other nowcasts will follow? For the moment, the GDPNow estimate is the upside outlier. Reviewing a range of nowcasts from various sources suggests that a downshift in Q4 growth is still the likely path. The median for these nowcasts is a modest 2.0% increase, unchanged from the previous estimate (Nov. 26).

Meanwhile, some Wall Street economists are lifting their US growth outlook, which may be a clue for what’s coming. “Given that history recently of underestimating [US economic growth] and the fact that GDP forecasts for next year are creeping up very, very, very slowly, I’m making a bet on the 2% to 3% [growth] instead of the 1% to 2%,” says RBC Capital Markets head of US equity strategy Lori Calvasina.

It’s possible that the GDPNow estimate is ahead of the curve and is picking up on firmer economic activity going into the final month of the quarter. But the New York Fed’s nowcast is showing the opposite trend in its Nov. 29 update. This model’s estimate slipped to a 1.8% growth rate for Q4.

As usual, it’s unclear in real time which models are more signal than noise, and vice versa. That leads us to continue to favor the median 2.0% estimate. If the stronger GDPNow estimate is in fact the better nowcast, we’ll soon see confirmation in revised data in the days and weeks ahead.