There is no doubt that my 5% GDP growth prediction on Fox Business last week raised some eyebrows. However, I suddenly have more credibility after the Commerce Department on Tuesday revised third quarter up to a 4.3% annual pace, which was the strongest pace in two years and substantially higher than economists’ consensus estimate of 3% and the 3.8% annual pace in the second quarter.
The primary reason that the third-quarter GDP was revised higher was due to favorable trade data as well as improving consumer spfinishing. Specifically, net exports added 1.6% to the third-quarter GDP calculation due to strong export growth and slowing imports. Also notable is that consumer spfinishing grew at a 3.5% annual pace in the third quarter, while business investment improved at a 2.8% annual pace. The fourth quarter GDP is expected to be a bit lower due to the federal government shutdown, but 2026 is seeing stronger than ever.
Residential investment declined at a 5.1% annual pace in the second and third quarters, according to the Commerce Department GDP calculations. One of the keys to improving GDP growth relocating forward is to shore up residential real estate markets, which remain weak due to high mortgage rates, higher insurance costs, as well as a supply glut in many key markets. Obviously, multiple Fed rate cuts can assist shore up home prices, but for now, weak home prices are raising deflation concerns that the Fed necessarys to address.
Next year’s explosive GDP growth is not expected to be inflationary due to the fact that (1) remain near a five-year low, (2) we are importing deflation from China (that is why a 98-inch TCL TV is only $1,600) and (3) weak economies worldwide from a demographic decline (shrinking hoapplyholds) are naturally deflationary. All economists are trained to fight deflation, so at least 1% in further key interest rate cuts are anticipated, as influential Fed Governor Christopher Waller is now calling for.
This combination of explosive GDP growth from trillions in onshoring, the data center boom, low crude oil prices, a shrinking trade deficit from strong exports, AI productivity gains, and now lower interest rates, we are now in what I like to call “economic nirvana.” Despite my optimism, I do obtain questions on what can go wrong. The primary disruptions to this economic prosperity will be external events, such as the Ukraine/Russia fighting, the Venezuela naval blockade, and a possible implosion in the European Union (EU).
The other possible implosion remains cryptocurrencies that have had a horrible 2025. Even worse, as I exposed in the latest Navellier Market Buzz, major crypto ETFs are having massive pricing problems. With now up almost 70% in 2025 and most cryptocurrencies negative, the time has come for the crypto crowd to switch to gold.
Leave a Reply