The Atlanta Fed’s Q1 GDPNow estimate has been revised down to -2.1% from -1.6%. This adjustment follows a decrease in the forecast for first-quarter real personal consumption expenditures growth, dropping from 1.1% to 0.4%.
Recently, high US gold imports contributed to a larger trade deficit in January, impacting the data by approximately 2 percentage points. The adjusted estimate for GDP now stands at around -0.1%, indicating a concerning economic situation but not signalling immediate alarm. Further deterioration in the US trade deficit is anticipated in February and March due to tariffs and other factors.
Weakened Consumer Spending
The downward revision in the Atlanta Fed’s Q1 GDPNow estimate reflects a weakening economic outlook, driven largely by lower-than-expected consumer spending growth. The reduction from 1.1% to 0.4% in real personal consumption expenditures suggests households may be becoming more cautious, whether due to inflationary pressures, higher borrowing costs, or wavering confidence in economic stability.
Trade data has also influenced these projections. A spike in gold imports led to a widened trade deficit for January, pulling GDP growth estimates lower by roughly 2 percentage points. While this dynamic alone does not indicate a broader structural shift, further declines in net exports in the coming months are likely. Additional headwinds from tariffs and shifting global supply chains could weigh on future calculations.
For those assessing market movements, the adjustments to these estimates matter. A contraction of -0.1% would suggest an economy stagnating rather than plunging into immediate distress. However, trends in February and March may provide more clarity. If the trade deficit expands further, GDP forecasts could face additional downward pressure, which in turn might influence expectations for monetary policy responses.
Future Economic Risks
In the short term, the risk of persistent weakness cannot be disregarded. If consumer spending remains subdued and trade conditions worsen, downward revisions would be expected. If new data suggests a stabilisation of personal consumption or improvements in trade balances, reassessments may be needed. Either way, the coming weeks will require close monitoring of both economic reports and market reactions.
