Consumer Services (PCE) Not AI Will Drive Fourth-Quarter 2025 GDP

GDPNow Percentage Point Contribution Estimates to 2025 Q4 GDP

GDPNow Percentage Point Contribution Estimates

• PCE Goods: 0.17

• PCE Services: 1.47

• PCE Nonresidential Equipment: 0.13

• Intellectual Property: 0.31

• Nonresidential Structures: -0.05

• Residential Investment: 0.00

• Federal Government: 0.07

• State and Local Government: 0.17

• Imports: 0.52

• Export: 0.10

• CIPI: 0.69

Three Key Notes

1. The above numbers represent expected changes vs the BEA reported third-quarter 2025 GDP contributions.

2. Intellectual property plus nonresidential equipment is a reasonable proxy for AI spending. The expected AI contribution is ~0.44 percentage points.

3. Change in Private Inventories (CIPI) nets to zero over time. Thus, the real final sales numbers are better numbers to follow, not the top line reported GDP.

Evolution of Atlanta Fed GDPNow 2025 Q4

GDPNow Evolution

2025 Q4 Nowcast

• GDP: 3.6 percent (top line estimate)

• Real Final Sales: 2.9 percent (GDP Minus CIPI)

• Real Final Domestic Sales: 2.2 percent

• Real Final Private Domestic Sales: 2.4 percent

Import Notes

Imports do not impact GDP, ever, by definition. Imports are not “Domestic” product.

However, the BEA subtracts imports from the GDP as a calculation because it erroneously adds imports to domestic sales. This is a necessary adjustment because it would be impossible to figure out the domestic content of every item sold.

The GDPNow import contribution is positive because the model expects imports to decline relative to the third quarter.

Industrial Production

I would have thought today’s Industrial Production numbers would have added to GDP but they didn’t.

Q: Why?
A: It’s not the data that matters but what the model expected.

The GDPNow model expected numbers even bigger than happened.

Blue Chip and Other Forecast

GDPNow charts the Blue Chip forecast with a lag, but it does not post the actual numbers.

I asked Pat Higgins if he could post the Blue Chip numbers but he can’t. The Atlanta Fed can and does post the resultant chart with a lag.

The GDPNow model has had a very good track record when adjusted for gold. However, GDPNow does not adjust for silver. The latter may impact import-export numbers.

The Bloomberg Econoday consensus is 2.8 percent in a range of 1.7 percent to 3.6 percent.

2.8 percent seems like a reasonable estimate. If so, that would put final private domestic sales at 2.0 percent +- 0.4 percent or so.

Looking ahead, watch PCE services, especially health care. I expect a big splurge in health care expenditures in 2026.

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