The year is set to end on a bright note for the upcoming US GDP report for the fourth quarter, based on several nowcasts. The outlook for early 2022 is shaky, thanks to the spreading Omicron variant of the coronavirus. But there’s a relatively high degree of confidence that the end of 2021 will at least provide a tailwind as the country moves into the third calendar year of the pandemic.
Output is on track to increase by a strong 7.4% in next month’s release of Q4 GDP data from the Bureau of Economic Analysis, based on the median of several nowcasts compiled by CapitalSpectator.com. The estimate reflects a sharply higher increase over the modest 2.3% gain in Q3.
Today’s revised Q4 nowcast reflects a solid improvement over the +5.6% estimate published earlier in the month. Forecasts are always suspect, of course, but at this late date in the current quarter the bulk of key Q4 economic numbers have been published. Here’s the current lineup, as published earlier in the week via The US Business Cycle Risk Report.
Nearly all of October and November numbers are available plus a few of December’s data points. Short of an epic collapse for the incoming numbers for the final month of the year (a highly unlikely scenario), there’s a solid case for seeing an improvement in Q4.
Although the quarterly comparison for Q4 looks encouraging, the new year is expected to bring stronger headwinds due to Omicron. Factoring in the uncertainty, Mark Zandi, chief economist for Moody’s Analytics, trimmed his outlook for Q1 growth to 2% from 5% previously. “Omicron is already affecting people’s behavior and business practices,” he said last week.
It’s been clear for several months that the broad macro trend for the US has been decelerating, based on a pair of proprietary indicators regularly updated in The US Business Cycle Risk Report. Forward January estimates for the Economic Trend Index (ETI) and Economic Momentum Index (EMI) show an ongoing slowdown for 2022’s kickoff.
Although both indicators predict softer growth through next month, the projected readings remain well above their neutral points (50% and 0%, respectively). That’s a sign that while growth is on track to decelerate, the expansion will persist at a moderate pace and so recession risk for the near term remains low, at least for now. In the grand scheme of macro possibilities, that’s not a bad way to end the year.
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