Eight months after 2023 kicked off with widespread recession calls across Wall Street, the Atlanta Fed is projecting the economy will grow nearly 6% in the third quarter.
On Tuesday, the Atlanta Fed's GDPNow estimate moved up to 5.8% from 5.0% a day prior after fresh data from the Census Bureau's showed housing starts increased 3.9%. in June. If the 5.8% GDP growth number held, it'd mark the most robust period of economic growth since the fourth quarter of 2021.
The higher projection from the Atlanta Fed is the latest piece of data pointing to a stronger than expected US economy. On Tuesday, July's retail sales report revealed sales increased 0.7% in the month with the control group, which contributes directly to Gross Domestic Product (GDP), rising 1.0%. Economists surveyed by Bloomberg had expected just a 0.5% increase for the control group.
The upbeat print on the consumer came after recent jobs data showed the economy is still adding jobs while unemployment remains historically low and monthly wage growth has begun to outpace inflation, providing a potential boost for further consumer spending.
We're halfway through Q3 and the Atlanta Fed Q3 GDP Nowcast is tracking at +5.8% growth 😳 Residential investment (included in Private Investment), is now expected to add to GDP growth for the first time in a while, while Consumer Spending is chugging along. pic.twitter.com/RrQSlQEQvI
— Liz Young (@LizYoungStrat) August 16, 2023
2023 has been marked by upward revisions to economic growth. An initial reading for first quarter GDP of 1.1% was boosted to 2.0%. The first reading of second quarter GDP came in hotter than expected, too. A 2.4% reading in late July, revealed the economy grew at a faster pace in the second quarter.
The growth has become so robust to the upside that some economists are now beginning to question if the positive data could be detrimental to recent improvements on the inflation front.
"While good news for the near-term real GDP growth outlook (Q3 is likely to print at least 2% annualize and probably stronger), the resilience of the US consumer complicates the picture for the Fed," Citi US economics research analyst Gisela Hoxha wrote in a note on Tuesday after the release of the retail sales report. "Upside surprises to demand for goods mean increasing upside risk to prices for a category of inflation that has been reliably soft this year."
Still, Thursday's upgrade to the GDPNow forecast comes just midway through the third quarter with a substantial amount of data before the quarter closes at the end of September.
Fed Chair Jerome Powell is expected to address the state of the economy and the fight against inflation during the 2023 Economic Policy Symposium in Jackson Hole which begins on August 24.
Per minutes from the Fed's July meeting released on Wednesday, central bank officials still view inflation as "unacceptably high." Most officials said they see still significant upside risks to inflation.
"Participants continued to view a period of below-trend growth in real GDP and some softening in labor market conditions as needed to bring aggregate supply and aggregate demand into better balance and reduce inflation pressures sufficiently to return inflation to 2 percent over time," the minutes read.
Josh Schafer is a reporter for Yahoo Finance.
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