Stronger than expected 1Q GDP estimate
Consensus estimates of economists were too pessimistic before the strong employment numbers for last month were released. The Atlanta Fed's estimates will vary widely and likely will change.
Latest 1Q GDP estimate: 2.2 percent — February 8, 2023
The Atlanta Fed's GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 2.2 percent on February 8, up from 2.1 percent on February 7. After this morning's wholesale trade release from the US Census Bureau, the nowcast of first-quarter gross private domestic investment growth increased from -6.2 percent to -5.6 percent.
My take:
The Atlanta Fed's estimates will vary as new data are released. The estimates change constantly as new economic data is released. The contraction of GDP will likely happen in the 2Q, 3Q and perhaps in the 4Q. The Fed will hike 25 basis points in early March and again in May and then pause for an extended period.
If employment numbers continue to show strength, they will continue to raise rates to perhaps as high as 6%. A slowdown in the service sector (75% of consumer spending) is what they are looking for and this may not happen until the 2nd half of this year.
The Fed Funds futures has the Fed pivoting in July, but the Fed expects to hold rates longer, perhaps into 2024. I'll go with the Fed's expectation and move capital into the very short end of the yield curve and bet the stock market moves lower prior to the Fed Funds rate peak.
The SP500 could test the lows in October and may even fall to 3000 from today's 4111. This will set up a nice rebound for those who want to play the big swings. The upside to the market is limited and the risk is to the downside.
The next GDPNow update is Wednesday, February 15. Please see the "Release Dates" tab below for a list of upcoming releases.