The US economy is set to experience a significant boost in the third quarter, with the Federal Reserve Bank of Atlanta revising its GDP prediction from 4% to nearly 6%. This increase in the outlook can be attributed to a surge in new construction projects for single-family homes and a strong performance in US industrial production. Personal consumption, particularly in the form of car sales and retail spending, is expected to be a major driver of this growth. However, there are concerns that the Atlanta Fed’s prediction for residential investment may be too optimistic, as the modest improvement in housing starts may not indicate the breakneck pace of growth anticipated.
Retail sales growth in July was the strongest it has been since January, with consumer spending spread across all categories. This broad-based improvement is in line with the overall positive outlook for the US economy. The surge in construction projects and increased availability of computer chips for auto manufacturers are also contributing factors to the expected economic growth. With a stabilizing housing market and stock market, wealthier consumers are likely to increase their spending, further driving the recovery. Overall, the US economy is showing promising signs of recovery and resilience.
US Economic Growth Forecast Rises to Nearly 6%, Fueled by Construction and Consumer Spending
The Federal Reserve Bank of Atlanta has increased its estimate for US economic growth in the third quarter, with its real-time model for gross domestic product (GDP) now predicting a growth rate of nearly 6%, up from the previous estimate of 4%. This upward revision is primarily driven by a surge in new construction projects for single-family homes in July and stronger-than-expected industrial production.
The construction sector, particularly residential investment, has been a key contributor to the improved forecast. The Atlanta Fed’s model tool predicted that residential investment would be positive in the third quarter for the first time. However, some economists are cautious about this prediction, suggesting that the improvement in housing starts from June to July is not indicative of a significant boost in residential investment.
Nevertheless, the US is currently witnessing a record number of new apartment units being built. With nearly 986,000 multifamily units coming online, the pace of apartment construction has surpassed that of the 1970s when baby boomers were in search of housing. This boom in construction is expected to support economic growth through increased consumer spending.
Consumer spending, particularly on durable goods, has been a key driver of the US economy. The surge in car sales and sustained strength in retail sales, despite a drop in certain categories, have played a major role in the economic recovery. Wealthier consumers, in particular, are expected to increase their spending as the housing and stock markets stabilize.
The positive outlook for the US economy is further supported by the strong growth in retail sales, which saw its strongest month-on-month increase since January. Growth in consumer spending was observed across all categories measured by the Census Bureau. This broad-based improvement in consumer spending aligns with the overall positive trend seen across various sectors of the US economy.
In conclusion, the Federal Reserve Bank of Atlanta’s upward revision of the US economic growth forecast to nearly 6% in the third quarter reflects the positive impact of construction and consumer spending. While there are some concerns about the sustainability of residential investment, the overall outlook remains optimistic as the US economy continues to recover from the impact of the pandemic.
Takeaways:
- The US economic growth forecast for the third quarter has been revised upwards to nearly 6% by the Federal Reserve Bank of Atlanta.
- Construction, particularly residential investment, and consumer spending are the main drivers of the improved forecast.
- The surge in new construction projects for single-family homes and the strong growth in retail sales support the positive outlook.
- While there are concerns about the sustainability of residential investment, the overall trend across various sectors of the economy remains positive.
- The stabilizing housing and stock markets are expected to boost consumer spending, particularly among wealthier consumers.
