Atlanta Fed Axes GDP Forecast (Again) — Evening Brief – 03.03.25
The Atlanta Fed’s GDPNow model has taken a dramatic nosedive over just two days, plummeting from a +2.33% growth forecast for the first quarter of 2025 to a -2.825% contraction—a jaw-dropping 510 basis point swing. That’s the steepest drop since the COVID lockdowns slammed the economy in the second quarter of 2020, when GDP collapsed by 28.0% annualized.
The Atlanta Fed’s Friday update chalked it up to a nosedive in net exports’ contribution to GDP, swinging from -0.62 to -3.7 points as U.S. companies rush to stockpile imports ahead of anticipated tariffs. Census Bureau data backs this: goods imports spiked 5.3% month-over-month to $273 billion, the highest since July 2022, while exports barely budged at $120 billion.
Today’s forecast follows the release of the U.S. ISM Manufacturing PMI for February, which slipped to 50.3 from 50.9 the previous month, compared with the 50.6 consensus.
It’s still above 50, so technically the sector’s expanding—just not as briskly as before. New orders took a real hit, dropping to 48.6 from 55.1, which is contraction territory and the steepest slide since April 2020. Prices paid, though, spiked to 62.4 from 54.9, way above the 56.2 forecast—highest since July 2022—hinting at cost pressures kicking in, likely tied to tariff jitters. Employment also slipped below 50 to 47.6 from 50.3, showing a pullback there too.
“Demand eased, production stabilized, and destaffing continued as panelists’ companies experienced the first operational shock of the new administration’s tariff policy,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery stoppages and manufacturing inventory impacts. Although tariffs do not go into force until mid-March, spot commodity prices have already risen about 20%.”
Still, it’s a head-scratcher at first glance—a 0.6-point dip in the ISM Manufacturing PMI, still in expansion territory above 50, somehow sent the Atlanta Fed’s GDPNow forecast tumbling.
“After this morning’s releases from the US Census Bureau and the Institute for Supply Management, the nowcast of first quarter real personal consumption expenditures growth and real private fixed investment growth fell from 1.3% and 3.5% respectively, to 0.0% and 0.1%,” according to the Atlanta Fed.
The model’s creator, Pat Higgins, has said its average absolute error is about 0.84 points historically, though it’s been shakier post-COVID. Plus, it’s purely mathematical—no subjective tweaks—so it’s reacting to data like January’s -0.2% personal spending drop and a trade deficit ballooning to drag GDP down.
Still, it’s early in the first quarter, and GDPNow’s known to bounce around. Markets might be overreacting a bit, with Treasury yields dipping and stocks wobbly, but if consumer spending holds up, this could just be noise.