Key Highlights

● The Atlanta Fed's GDPNow model pointed to the strongest growth in a year.

● The reading aligns with the Fed's own assessment of a strong economy.

● A wider-than-expected trade deficit could offset some of the strength.

● A strong reading could strengthen the case for another rate hike.

Ahead of the official report on third-quarter economic growth, one closely watched model was flashing a bright signal, as the Atlanta Fed's GDPNow tracker pointed to a strong third quarter, its strongest reading in a year, giving economists reason to expect a robust number when the government releases its advance estimate.

The reading lines up with the Federal Reserve's own assessment, with the central bank's statement saying economic activity is expanding at a strong pace.

What GDPNow Is

GDPNow is a model that estimates economic growth in real time, updating as new data arrive, such as retail sales, industrial production, housing figures and trade numbers. It is not an official forecast, but economists and investors watch it closely as a running estimate of where GDP is heading.

Because it reacts to each new data point, GDPNow can shift substantially over the course of a quarter, and a strong reading this late in the process suggests the data so far have consistently pointed to solid growth.

What It Means for the Fed

A strong growth number could strengthen the case for another rate hike, since the Fed left its benchmark rate range unchanged, but two officials dissented in favor of a hike, and market odds of a December increase rose after the meeting.

Not all data pointed the same way, as a wider-than-expected trade deficit could subtract from the headline GDP figure, while rising wholesale inventories could offset some of that drag, leaving economists to weigh both pieces as they fine-tune their estimates.