The economy may be in better shape than predicted

A Federal Reserve estimate projects robust fourth-quarter growth

January 23, 2026

• U.S. GDP remains strong, with nowcasts pointing to an exceptionally high fourth-quarter growth rate

• Consumer spending and business investment are leading sectors, while housing and some investments lag

• Mixed signals in labor markets and delayed official data leave uncertainties ahead

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Preliminary indicators show the U.S. economy continued to expand at a robust pace at the end of 2025, with gross domestic product (GDP) signaling one of the strongest quarterly growth readings in recent memory.

According to the Federal Reserve Bank of Atlantas GDPNow model, which synthesizes recent economic data ahead of official release figures, real GDP growth in the fourth quarter of 2025 is currently estimated at about 5.4% annualized. Thats a dramatic upward revision from earlier forecasts and well above trend levels.

Official GDP estimates for Q4 have been delayed due to data availability issues, but analysts and markets are closely watching these nowcasts as a proxy until the Bureau of Economic Analysis (BEA) releases formal numbers later this year.

Strongest performers in the economy

U.S. consumer demand which accounts for roughly two-thirds of GDP continues to be a major engine of growth. Recent estimates suggest persistent strength in household consumption, particularly in services and discretionary spending categories, helping underpin broad economic resilience.

Business investment, especially in technology and capital equipment (including artificial intelligence-related spending), has also been a sizable contributor to GDP growth. Private investment was one of the components that pulled the GDPNow estimate higher through recent data releases.

In spite of tariffs, improvements in the trade picture including a decline in the trade deficit as exports gained ground and imports softened also added to GDP growth projections for Q4.

Areas facing pressure

While overall business investment is strong, some subcategories tell a different story. Recent revisions to the Q4 nowcast reflect weakness in housing investment, with residential construction and related sectors posting sharp downturns that undercut potential GDP gains.

Despite the strong growth signals, the broader job market has not shown a proportionate acceleration. Employment gains in late 2025 were modest, leaving unemployment stubbornly above pre-COVID averages and limiting wage growth a dynamic some economists describe as a jobless boom.

Some analysts warn that parts of the technology investment boomwhile currently lifting GDP measuresmay have outsized import content or could moderate if global demand softens. That raises questions about the durability of this growth in future quarters.

Looking ahead

Official BEA data for the fourth quarter of 2025 and the full years GDP are expected later in 2026, filling in detailed sector contributions and revisions once source data are complete. Meanwhile, the strong nowcast if it holds suggests the U.S. economy entered 2026 on solid footing with some of the fastest growth in years.

However, economists emphasize caution: high interest rates, housing weakness, and labor market nuances could temper expansion later in the year. The full picture will emerge as official data catch up with model forecasts.

 

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