US Q3 GDP Preview: Here's What Goldman Sachs, Atlanta Fed Expect

The Bureau of Economic Analysis (BEA) is preparing to release its third-quarter advance estimates for the U.S. gross domestic product (GDP) on Thursday.

The U.S. is poised to showcase its most robust economic growth rate in years.

The latest data is in stark contrast to views and recession fears certain economists shared just a few short months ago.

This eagerly anticipated economic indicator promises to reveal the extent to which the U.S. economy flexed its muscles last quarter, while also providing vital insights to Fed policymakers on their intricate balance between growth and inflation.

US Q3 GDP: What Are Economists Anticipating?

Expectations have reached a fever pitch for the third-quarter U.S. GDP data.

According to economists, the projection is for a quarter-on-quarter annualized growth rate of 4.3% for the third quarter of 2023. This figure would mark the strongest quarter since the final quarter of 2021.

Notably, excluding the roaring post-pandemic period, a 4.3% growth rate would reach levels not seen since the third quarter of 2014, a full nine years ago.

And when measured against the period following the great financial crisis and before the onset of the pandemic, this growth rate would rank in the 93rd percentile of the distribution, underlining its exceptional nature.

Chart: US GDP Is Set To Show A Strong Growth In Q3 2023

Goldman Sachs Expects 4.6%, Atlanta Fed Says 5.4%

According to Goldman Sachs’ economist Spencer Hill, robust data has significantly boosted expectations for Q3 growth in the past couple of months.

He pointed out that consensus forecasts have surged from +0.5% in mid-August to the current +4.3%, and their own prediction has risen from +1.5% to +4.6%.

The Atlanta Fed’s GDPNow model shows even loftier projections, now indicating a staggering 5.4% growth rate for the third quarter of the year. Achieving this rate would represent the strongest U.S. GDP growth rate seen between 2010 and 2019.

The primary driver of this economic upswing is anticipated to be the performance of consumer expenditure, which is poised to exhibit a 4% increase on a quarter-over-quarter annualized basis, as U.S. households continue to defy gravity rules poised by high inflation and interest rates.

Market Reactions

Here’s how the market responded to the BEA’s advance GDP estimates in 2023:

Jan. 26: The BEA announced that the U.S. economy had grown by 2.9% in Q4 2022, surpassing expectations of 2.6% but decelerating from the previous quarter (3.2%). This triggered a 1.1% rise in the SPDR S&P 500 ETF Trust SPY. Additionally, 10-year Treasury yields surged by 6 basis points, while long bonds, as tracked by the iShares 20+ Year Treasury Bond ETF TLT, fell by 0.5%.
April 27: The BEA announced that Q1 GDP had risen by 1.1%, significantly lower than the previous 2.6%, and well below the expected 2%. Stocks rallied, with the SPY up 2% on the session, as the market anticipated the end of Fed-interest rate hikes.
July 27: The BEA reported a 2.4% increase in the advance estimates of Q2 GDP, positively surprising expectations of 1.8% and showing a sequential growth compared to the final 2% reading in the Q1. The SPY fell by 0.7%, and hit the highest level of 2023 on that day. The broader U.S. stock market has fallen as much as 9% since then.

Chart: S&P 500 Topped On July 27, As Higher-Than-Expected Q2 Growth Fueled Risks Of Higher-For-Longer Interest Rates