Economic Forecast Takes a Hit as the Atlanta Fed Sees Risk of GDP Contraction

Key takeaways

• The Atlanta Fed’s GDPNow model swung dramatically from a 3.9% growth forecast to a -2.4% contraction in just four weeks, highlighting economic volatility
• Frontloading of imports, slower capital investment, and weak consumer spending were key contributors to the revised forecast
• While a slowdown is likely, Rooney Vera believes broader trend data is needed before concluding a full recession is underway

The Atlanta Fed’s GDPNow model recently indicated a dramatic change in US growth forecasts. A month ago the model projected a robust 3.9% growth. Yet, recently, that forecast has been revised sharply down - to a -2.4% contraction.

This reversal has led to the question, “is this just noise in the data, or is something bigger brewing”?

StoneX Chief Market Strategist Kathryn Rooney Vera isn’t convinced this is a sign of deeper trouble – at least, not yet. “This isn’t new,” she said. “We’ve seen this before—in 2018, in 2022.”

Back then, businesses front-loaded imports to dodge future price hikes. She says that skews the data, and it is happening again. But does it mean the economy is shrinking? Not necessarily.

Still, there’s more to consider. Capital investment is slowing. Businesses are pulling back. Regional Fed banks are taking note. That’s usually a warning sign. When companies hesitate to spend, they’re hedging against uncertainty. And markets are starting to notice.

The greater concern reportedly lies with the consumer - the backbone of the U.S. economy. The latest data shows personal spending at its weakest in over a year. If consumer demand falters, it could have a far material impact in the underlying economic trend.

But Rooney Vera says she isn’t ready to hit the panic button. “We’d need to see more than just January’s data to confirm a recession,” she said.

All eyes are now on the Federal Reserve’s plans moving forward into 2025 amid such uncertainty linked to fluid executive branch policies. It may be difficult for the market – much less the Fed – to assess the path of rates moving forward.

For investors, Rooney Vera says the takeaway is simple: maintain patience. Though the market reacts sometimes dramatically to data swings, the bigger picture is what really matters. And, it is still unclear.

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Written by: Andy Catsimanes
Expert: Kathryn Rooney Vera, Chief Market Strategist

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