Key Takeaways
- The Atlanta Fed's GDPNow model revised its Q4 2025 real GDP growth estimate to 3.6% on February 18, a slight decrease from the previous 3.7% forecast.
- The adjustment follows the release of critical economic data, including January industrial production which rose 0.7%, and delayed December housing starts data.
- Despite the marginal decline, the 3.6% projection remains well above the initial 3.0% estimate from late 2025, suggesting a resilient "no landing" scenario for the U.S. economy.
- Market focus remains on the Federal Reserve's next move, with the current federal funds rate held at 3.5%–3.75% and speculation mounting over a potential rate cut in mid-2026.
The Federal Reserve Bank of Atlanta updated its GDPNow model on Wednesday, lowering the "nowcast" for fourth-quarter 2025 real GDP growth to 3.6%. This revision from the previous 3.7% estimate reflects the latest integration of data from the U.S. Census Bureau and the Federal Reserve Board of Governors. While the headline figure saw a minor dip, the broader trend continues to point toward a robust expansion that has consistently outperformed early-quarter expectations.
The update was primarily influenced by a flurry of economic reports that had been delayed due to a 43-day government shutdown earlier in the reporting cycle. On Wednesday, the Federal Reserve reported that industrial production in January climbed by 0.7%, surpassing the 0.4% growth expected by economists. This surge was driven by a 2.1% jump in utilities output and a 0.6% increase in manufacturing, the largest gain for the sector in nearly a year.
Simultaneously, the U.S. Census Bureau released long-awaited residential construction data. Housing starts for December were reported at a seasonally adjusted annual rate of 1.404 million, representing a 6.2% increase from November. Building permits also saw a healthy rise of 4.3% to 1.448 million. These figures suggest that the housing market remained active through the end of 2025 despite high borrowing costs and the temporary lapse in federal services.
The slight downward revision in the overall GDP estimate likely stems from internal model adjustments to real personal consumption expenditures and real gross private domestic investment. Analysts noted that while production and housing remain strong, retail sales data from December had been relatively flat, dragging on the consumption component of the model. This "K-shaped" economic recovery has seen steady spending from higher-income households while lower- and middle-income consumers face increasing financial stress.
Investor sentiment remains cautiously optimistic as the Federal Reserve maintains a "data-dependent" stance. Following the January meeting where rates were held steady at 3.5%–3.75%, the market is now pricing in a roughly 60% chance of a rate cut by June 2026. The nomination of Kevin Warsh as the potential new Fed Chair has added a layer of uncertainty to the long-term monetary outlook, though current Chair Jerome Powell has emphasized that the economy is entering 2026 on a "firm footing."
Large-cap technology stocks, particularly those tied to the AI revolution like Nvidia (NVDA), continue to serve as a primary engine for productivity gains that are supporting these higher-than-average GDP forecasts. As the Bureau of Economic Analysis (BEA) prepares to release its official "advance" estimate for Q4 GDP later this week, the Atlanta Fed's 3.6% figure will serve as a critical benchmark for market expectations.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.