Wall Street is gradually turning its attention towards an “expansion economy” and leaving behind any concerns of a recession. With the recent release of a soft consumer inflation report in July, the focus will soon shift to the gross domestic product in the upcoming weeks, along with resolutions to various pending matters.
As seen in the chart below, the Atlanta Fed’s GDPNow forecasting tool is projecting a robust 4.1% growth for Q3. However, economists’ Blue Chip consensus suggests a more modest growth of less than 1% for the same period.
Why is there such a significant disparity between these numbers? Economists seem to be slow in updating their forecasts, presumably due to the stark contrast between the current economic trends and their initial expectations for 2023. Be sure to mark October 26 down on your calendar – that’s when the advanced estimate for Q3 GDP will be released.
Remember, GDP is measured by adding up consumption (C), government spending (G), investment (I), and net exports (NX). If GDP does in fact increase by 4.1%, it means one or all of these components are driving overall economic growth.
Over time, the Atlanta Fed GDPNow estimate and the projections of Blue Chip economists are expected to align. But then the question is, how will the financial markets respond?