Daily Spotlight

Raising GDP Forecasts

We are raising our 2026 GDP growth forecast to 2.3% from 2.2% and lifting our 2027 growth estimate to 1.8% from 1.7%. The $31 trillion U.S. economy remains on course for modest growth, powered by corporate investments in AI and outsized spending by the wealthiest households. Unemployment remains low, the Fed's late-2025 rate cuts are a tailwind, and last year's tax legislation should result in healthy refunds and cash in consumers' pockets this spring. Recent economic data has been better than we expected. Yes, hiring remains slow, but the jump of almost 10 points in the Institute of Supply Management's Index of Manufacturing New Orders is an impactful upside surprise. The advance estimate of 4Q GDP will be released on February 20. We expect 3.1% growth, up from 2.4%, which will boost our estimate for 2025 GDP growth to 2.6% from 2.5%. We expect 2.6% GDP growth in 1Q26, followed by 2.5%, 2.3%, and 2.0% quarterly growth for the remainder of 2026. Indicators driven by a broad array of data are projecting continuing near-term growth. On February 2, the best known of these timely indicators, the Federal Reserve Bank of Atlanta's GDP Nowcast, provided an estimate for a 4Q GDP increase of 4.2%, with Personal Consumption Expenditures (PCE) projected to grow 3.1%. The categories where we would see AI investment are adding about a half point of growth. There are almost 1.5 points of growth coming from net exports and inventory accumulation, which are more than we would expect on an ongoing basis. On January 30, the Federal Reserve Bank of New York's Staff Nowcast for 4Q called for 2.74% growth, with a 70% probability range of 0.90% to 4.67%. The 1Q26 Nowcast is projecting 2.73% growth. The Weekly Economic Index tracked by the Federal Reserve Bank of Dallas is based on 10 daily and weekly indicators of consumer behavior, the labor market, and production. If, for example, an index value of 2% persisted for an entire quarter, the index would suggest that quarter's GDP would be 2% higher than a year ago. For the week ended January 24, 13-week moving average was 2.26%....  expected. Yes, hiring remains slow, but the jump of almost 10 points in the Institute of Supply Management's Index of Manufacturing New Orders is an impactful upside surprise. The advance estimate of 4Q GDP will be released on February 20. We expect 3.1% growth, up from 2.4%, which will boost our estimate for 2025 GDP growth to 2.6% from 2.5%. We expect 2.6% GDP growth in 1Q26, followed by 2.5%, 2.3%, and 2.0% quarterly growth for the remainder of 2026. Indicators driven by a broad array of data are projecting continuing near-term growth. On February 2, the best known of these timely indicators, the Federal Reserve Bank of Atlanta's GDP Nowcast, provided an estimate for a 4Q GDP increase of 4.2%, with Personal Consumption Expenditures (PCE) projected to grow 3.1%. The categories where we would see AI investment are adding about a half point of growth. There are almost 1.5 points of growth coming from net exports and inventory accumulation, which are more than we would expect on an ongoing basis. On January 30, the Federal Reserve Bank of New York's Staff Nowcast for 4Q called for 2.74% growth, with a 70% probability range of 0.90% to 4.67%. The 1Q26 Nowcast is projecting 2.73% growth. The Weekly Economic Index tracked by the Federal Reserve Bank of Dallas is based on 10 daily and weekly indicators of consumer behavior, the labor market, and production. If, for example, an index value of 2% persisted for an entire quarter, the index would suggest that quarter's GDP would be 2% higher than a year ago. For the week ended January 24, 13-week moving average was 2.26%.  more

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