The latest data from the Atlanta Federal Reserve Bank’s GDPNow tracker indicates that the U.S. economy is on pace to contract by 1.5% in the first quarter of 2025. This shift marks a significant downward revision from the tracker’s earlier projection of 2.3% growth, signaling mounting economic headwinds.
Declining Consumer Spending and Weak Exports
Fresh data suggests that a combination of weaker-than-expected consumer spending and sluggish export activity contributed to the decline. A recent report from the Commerce Department revealed that personal spending decreased by 0.2% in January, falling short of the anticipated 0.1% increase. When adjusted for inflation, spending actually dropped 0.5%, shaving a full percentage point off the GDP growth estimate.
At the same time, net exports were a major drag on growth. The GDPNow model adjusted its estimate of net exports’ contribution to GDP, plummeting from -0.41 percentage points to -3.7 percentage points.
Recession Signals from Markets and Economic Indicators
The downgrade coincides with growing signs of economic stress. Market signals have increasingly pointed toward a potential downturn, as shown by the inversion of the 3-month Treasury yield relative to the 10-year note, a historically reliable recession indicator.
In addition, labor market data has weakened, with weekly jobless claims climbing to 242,000, the highest level since early October. Declining consumer confidence and increasing inflation concerns are also weighing on sentiment.
Federal Reserve Policy and Market Expectations
As economic uncertainty intensifies, financial markets are pricing in a more accommodative stance from the Federal Reserve. Traders in the fed funds futures market now anticipate an 80% probability of a quarter-point interest rate cut in June, with expectations of up to three cuts before the year’s end.
The stock market has shown heightened volatility in response to economic data fluctuations. The Dow Jones Industrial Average remains up by 2% in 2025, though investor sentiment remains cautious amid growing concerns over slowing economic momentum.
Overall Economic Outlook
The Atlanta Fed’s tracker has historically exhibited volatility, particularly in the early months of a quarter. Nonetheless, the latest reading aligns with growing evidence of an economic deceleration. With inflation, consumer behavior, and global trade dynamics in flux, investors and policymakers alike will be closely watching upcoming data for further confirmation of the economy’s trajectory.
