Near-term indicators continue to signal expansion. The Federal Reserve Bank of Atlanta’s GDPNow model on 4 September pointed to 3.0% growth in the current quarter, underscoring resilience in consumer spending and corporate earnings.
Key drivers of the upgrade
Analysts attribute the higher 2026 forecast to an anticipated decline in borrowing costs, which is expected to bolster residential investment and sales of big-ticket items such as automobiles and appliances. Lower mortgage rates typically translate into stronger housing starts, while cheaper financing can spur purchases of consumer durables.
The modelling also incorporates greater capital spending on intellectual property and information-processing equipment, driven by ongoing investments in artificial intelligence. These outlays are projected to offset weaker activity in non-residential construction, which, along with housing, was revised lower for the second half of 2025.
Contrasting signals in the current data
Despite the brighter medium-term picture, several short-term indicators highlight pockets of weakness. Hiring momentum has slowed, the Institute for Supply Management’s manufacturing index has contracted for six consecutive months, and construction spending has fallen for the same period. Those trends suggest that the economy is not yet on a sustained acceleration path.
Even so, unemployment remains low, consumer outlays are holding up, and robust corporate profits continue to underpin equity prices. Analysts believe these factors will help bridge the economy until lower policy rates and, potentially, larger tax refunds provide additional support.
Methodology behind the forecast
The research team compiled the projections line by line, mirroring the approach typically used in building company earnings models. By dissecting each GDP component—consumer spending, business investment, government expenditures and net exports—the analysts aimed to reduce statistical “noise” and present a clearer view of underlying momentum.
In their baseline scenario, personal consumption remains the primary engine of growth, while business investment in technology acts as a secondary pillar. Government spending is expected to moderate, and the trade balance is projected to have a neutral effect.
Risks to the outlook
Potential headwinds include a deeper-than-expected slowdown in hiring, prolonged weakness in manufacturing, and a sharper pullback in construction. In addition, a delayed or smaller-than-anticipated decline in interest rates could restrain housing activity, while any resurgence in inflation might prompt the Federal Reserve to keep policy tighter for longer.
On the upside, faster adoption of productivity-enhancing technologies or stronger foreign demand could lift growth above current estimates. For now, forecasters view the balance of risks as broadly symmetrical, with a modest bias toward upside in 2026 if financial conditions ease as projected.
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