Booming Economy: New York Fed GDP Reading Hits 3.9 Percent

An American Flag and a Donald Trump flag wave outside a Donald Trump rally at Millington Regional Jetport on February 27, 2016 in Millington, Tennessee. / AFP / Michael B. Thomas (Photo credit should read MICHAEL B. THOMAS/AFP/Getty Images)

The New York Federal Reserve’s tool for forecasting gross domestic product (GDP) hit its highest point ever on Friday, pointing to a fourth-quarter GDP growth of 3.93 percent.

The number is so high that the New York Fed’s “Nowcasting Report” had to be rescaled to allow for such a high reading. Prior to the most recent quarter, the Nowcast has never before predicted GDP above 3.2 percent and rarely ever above 3 percent.

The Nowcast uses the most recent economic figures to try to get a real-time reading of economic output. It is updated weekly. Last week’s number was pushed up by good news about employment, inventories, and new home sales. Low inflation was a drag on the number.

The message from the New York Fed is simple: the economy is booming.

The economy has grown at greater than 3 percent for every full quarter that Donald Trump has been president. It grew at just 1.24 percent in the first quarter of the year as the country transitioned from the Obama administration to the Trump administration.

A 3.9 percent growth rate is far higher than economists forecasted when surveyed by the National Association for Business Economics (NABE). Despite signs that the economy had strengthened, most saw the economy slowing down at the end of the year. The NABE survey forecast just 2.8 percent for the third quarter. Instead, the economy grew at an annualized rate of 3.3 percent, according to the latest figures from the U.S. government. The NABE survey forecast 2.5 percent growth for the fourth quarter, more than a full percentage point from where the New York Fed Nowcast is pointing:

New York Fed Nowcast of GDP

New York Fed Nowcast of GDP

The economy has been regularly outperforming forecasts since Trump took office. Many economists had nothing but scorn for Trump’s prediction that he could achieve three percent growth, but now, that looks like a real possibility, as three consecutive quarters of growth above three percent looks likely.

The New York Fed Nowcast is considered to be more optimistic than the older GDPNOW tool run out of the Atlanta Fed. But even the GDPNOW forecast looks very strong, turning in a 3.5 percent growth forecast on Friday.


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