NEW YORK, March 6 (RTSG) – The Federal Reserve in Atlanta is estimating a GDP shrinkage of -2.5 percent in the first quarter of 2025. While most outlets, including the Blue Chip Consensus, say that growth will remain relatively stable this quarter, Atlanta Fed’s GDPNow has given an ominous estimation of the health of the economy that has shocked both investors and consumers.

New indicators reported that consumers spent less than expected during the uncomfortable January weather and that exports were weak, which led to the downgrade. Prior to last week’s consumer spending report, GDPNow had been indicating growth of 2.3% for the quarter. This coincides with many other variables that might suggest that the economy is entering a slowdown.

The Commerce Department released a report saying that personal spending fell 0.2% in January, falling just below the Dow Jones estimate for a 0.1% increase. However, fully adjusted for inflation, spending fell 0.5%. As a result, that managed to remove a full percentage point off the expected contribution to GDP, down to 1.3%, according to the GDPNow calculation.

More concerning, however, were numbers coming out of the labor market as unemployment claims rose to 242,000, matching early October 2024’s numbers, causing concern among some investors.

Among the major drivers of GDP growth, including consumption, investment, government spending, and net exports, only government spending is remaining relatively stable, despite Elon Musk’s new “Department of Government Efficiency” promising to cut jobs and tighten spending. The U.S. House recently signed off on Trump’s proposed tax cuts and budgetary cuts bill which, if implemented, would sharply decrease government spending by $2 Trillion and loosen tax regulations by $4.5 Trillion.

Written by Seraph