US Nowcasts pointing to modest first-quarter growth

By Theresa Sheehan, Econoday Economist
April 25, 2022

The GDP nowcasts from two of the Fed’s district banks point to modest – but in the Fed’s eyes acceptable – expansion in the first quarter 2022. The most recent Atlanta Fed GDPNow forecast is for 1.30 percent annualized growth, a small upward revision from the prior reading. The Atlanta Fed measure tends to have a better correlation with the advance report out of the Bureau of Economic Analysis than the St. Louis Real GDP Nowcast. This estimate is at 1.96 percent growth as of April 22, a bit above the prior week’s 1.90 percent.

An average of the two puts growth at 1.6 percent for the first quarter which is above the consensus of up 1.1 percent in an Econoday survey of forecasters. This suggests room for an upside surprise when the data is reported at 8:30 ET on Thursday, April 28. By necessity the estimates are made on incomplete data and forecasters – government, Fed, or private – have to make assumptions. The advance estimate can be a tough call.

It is reasonably safe to say that the report should come in within comfortable reach of Fed policymakers’ expectations and their longer-run forecast of up 1.8 percent for GDP. If so, Chair Powell’s recent remarks that US economic growth will be credible also give the FOMC enough room to lift the fed funds target range by 50 basis points at the May 2-3 meeting in order to address heightened upward price pressure and risks. The worry is about raising too much and/or too quickly and choking off the current expansion while trying to bring down inflation. A single 50 basis point hike should be a safe move at the moment and does not necessarily presage similar moves at future meetings.