The Atlanta Fed’s GDPNow estimate for the second quarter has been adjusted downwards from 3.4% to 2.9%. This revision follows a soft US advance goods trade balance report, impacting expectations.

Recent data from the US Census Bureau and the US Bureau of Economic Analysis influenced this adjustment. While there was an increase in the nowcast of net exports’ contribution to GDP growth, rising from 2.07 percentage points to 3.49 percentage points, it was offset by a decrease in inventory investment’s contribution, which fell from -0.42 percentage points to -2.22 percentage points.

Gdpnow Estimate Decline

The GDPNow estimate has been gradually declining over the past month. However, more data will emerge before the first second-quarter growth estimate is released.

What this tells us is that short-term growth momentum in the United States has started to wobble, with mixed signals across core components. The GDPNow model, which is updated in real time based on incoming data, is suggesting that previous optimism may have been overstated. Although trade appears healthier — likely due to stronger export activity or weaker imports — it hasn’t been enough to balance declines elsewhere, particularly in inventories.

Inventory drawdowns of this size typically point towards some hesitation on the part of businesses, possibly due to weaker expected demand or supply chain caution. In this case, they’re acting as a considerable drag on output, trimming the headline figure substantially. We’re essentially seeing a transfer of strength from domestic business sentiment to external demand conditions. This sort of offsetting isn’t abnormal, but the scale here is meaningful.

From our perspective, this tells us to be more alert to the fine print. The model’s 2.9% revision, down from 3.4%, while still positive, hints at a fragile expansion underneath. Momentum appeared decent a few weeks ago, but recent shifts might pave the way for more sharp reappraisals as fresh information is published.

Market Implications And Strategy

For short-dated contracts, pricing paths may need realigning. Sudden shifts in component-level drivers — particularly the volatile inventory numbers — can trigger reassessments in expectations for upcoming measures of activity. Let’s not forget, these GDPNow changes are data-reactive and can swing quickly, so it may not be useful to anchor strategies to a static snapshot.

When contributions from net trade jump while inventory reduction deepens, that’s not a reassuring signal. It often reflects disrupted production cycles or uneven consumer demand. If this pattern continues, markets may begin to factor in an economic expansion that hinges increasingly on external balances, rather than resilient domestic conditions.

As for timing, any position with medium exposure should be reassessed once the Bureau releases more durable figures. We may still see volatility in economic forecasts as more granular inputs — retail sales, producer prices, and consumer sentiment — are reflected. In the meantime, any tactical exposure aligned with broad growth narratives should be continuously tested against updated real activity measures.

The key here is responsiveness over conviction. With such divergence between nowcasting components, it makes sense to focus on delivery from earnings and updates from major central banks, as they often move in response to precisely this kind of data. Monitor how Treasury markets digest new real growth assumptions — they can serve as a clearer signal than top-line figures alone.

Create your live VT Markets account and start trading now.