US Growth: Noisy Headlines, Solid Core

Headline GDP growth in the US has been volatile this year, swinging between zero in Q1:2025 (initial estimate minus 1%) to 3.8 and 4.4% per annum in the 2nd and third quarter. The Atlanta'Fed GDP NOW estimate for Q4 is currently 4.2% pa, down from 5.4 % a few weeks ago. Big swings in trade and inventories linked to tariff policy are mostly to blame.

Beneath this chaotic surface things are much steadier. Underlying GDP growth (Real Domestic Final Sales) wasn't zero in Q1 and isn't booming now either. RDFS grew1.9% pa in Q1, 2.9% in both Q2 and Q3 and as of mid-January is growing around 3% pa according to our GDP-U Nowcast, which is based on the latest available weekly data. See figure 1.

Figure 2 shows that our GDP-U measure is much less volatile than GDP NOW. - and therefore arguably more useful. Especially as GDP-U is typically highly correlated with Net Upside Earnings Surprise in the the US equity market - Figure 3