The Atlanta Federal Reserve is projecting a 1.5% gross domestic product (GDP) contraction in the first quarter, flashing warning signs for the US economy.
The forecast is a major change that has been fed to Atlanta over the past few weeks that comes more than a month after Chairman Trump took office.
Last week, the Atlanta Fed had projected positive growth of 2.3% in the first quarter. A month ago, it had grown at 3.9%.
The Atlanta Federal Government's GDPNOW measurement is an ongoing estimate of actual GDP growth based on data, rather than formal predictions.
The first quarter ends at the end of March, with GDP officially calculated by the Ministry of Commerce.
However, the major decline in good-looking indicators for the future will still be of great concern to policymakers, economists and markets, especially as GDP for the fourth quarter registered a strong second estimate this week.
GDP from October to December last year appeared at a healthy annual rate of 2.3%, as reported by the Commerce Department on Thursday. The third quarter's growth was a robust 3.1%, with the second quarter's growth at 3%.
However, amidst the uncertainty of macroeconomic policy and rising inflation, several warning signs for the economy have appeared in recent weeks.
Inflation, measured by the Federal Reserve's hoped personal consumption spending (PCE) price index, grew 2.5% per year on Friday, immersed just a tenth of a point after rising throughout the fall.
The Consumer Price Index (CPI) rose from an annual increase of 2.4% in September to a 3% increase in January, and after starting with a significant half-cent point cut in September, the Fed pumped the brakes on stimulus rate cuts.
Consumer sentiment fell off the cliff in January, down nearly 10% since January, as measured by the University of Michigan monthly survey.
Perhaps more concern for economists, consumer expectations for annual ahead-of-year inflation have reached its highest level since November 2023, increasing from 3.3% in December to 4.3% in January next year.
Companies have also expressed somewhat of a dissatisfaction with the lack of certainty in economic policy from the new Trump administration, and may be announcing new tariffs on several different occasions, canceling and rattling business investments.
“There is early evidence that current policy uncertainty is affecting consumer and business trust,” an analyst at Deutsche Bank wrote to an investor on Thursday.
“These early signs of weakening reliability could lead the US administration to adopt a more compassionate approach to spending cuts and tariffs. Alternatively, the current policy sequence could increase the risk of market pricing first,” they added.
Most CEOs voted last year by accounting firm PWC had a recession within six months of October 2024.
“61% of respondents agree that the US economy will experience a recession in the next six months, starting with 49% in the June 2024 survey,” PWC analysts found in last year's survey.
