GDP Estimate Rises to 5.4 Percent

By Emel Akan

The U.S. economy will have a blockbuster start to the year, according to the latest forecast from the Atlanta Federal Reserve.

U.S. gross domestic product (GDP) is expected to surge 5.4 percent in the first quarter, the Atlanta Fed’s GDPNow model showed. If the forecast holds, it will be the best quarter since late 2009.

The economy ramped up last year and hit the Administration’s 3 percent growth target in the second and third quarters of 2017. But then it slid to 2.6 percent in the last quarter.

On Feb 1, the Atlanta Fed revised its first-quarter GDP growth estimate upward from 4.2 percent to 5.4 percent, which is much higher than the previous quarter’s GDP. Their explanation for the sudden increase was strong manufacturing and construction spending data.

“The forecast of real consumer spending growth increased from 3.1 percent to 4.0 percent after this morning’s Manufacturing ISM Report,” the Atlanta Fed wrote in a brief note. The ISM (Institute for Supply Management) Manufacturing Index monitors employment, production, inventories, new orders and supplier deliveries.

The note also stated that the forecast of real, private fixed-investment growth surged from 5.2 percent to 9.2 percent, based on the ISM report and the construction spending release from the U.S. Census Bureau.

The ISM Manufacturing Index was little changed at 59.1 percent in January, beating expectations. An index reading above 50 is a sign of expansion in the economy.

Comments from the nation’s supply executives “reflect expanding business conditions, with new orders and production maintaining high levels of expansion,” stated the ISM report.

Factories are also having trouble keeping up with demand as the capital expenditure lead times increased 8 percent in January to 150 days, the longest since 1996, according to a Bloomberg report.

Separately, the Commerce Department announced that construction spending rose more than expected reaching an all-time high of $1.25 trillion in December.

Stephen Moore, an economist at the Heritage Foundation and former economic adviser to Trump’s 2016 presidential campaign predicts that economic growth in the first half of this year will be very strong.

“Economist Arthur Laffer has found that some firms delayed capital and construction projects to Jan. 1 to take advantage of the lower tax rates on profits and the immediate expensing of capital purchases beginning in 2018,” he wrote in a Jan. 31 article for The Hill.

“If Laffer is right, then the growth that would have happened in late 2017 has been shifted into 2018,” he stated. “Expect a blockbuster first half of the year.”

From The Epoch Times


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