The Atlanta Fed GDPNow Model forecast took yet another dive today.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.0 percent on June 30, down from 0.3 percent on June 27. After recent releases from the US Bureau of Economic Analysis and the US Census Bureau, the nowcasts of second-quarter real personal consumption expenditures growth and real gross private domestic investment growth decreased from 2.7 percent and -8.1 percent, respectively, to 1.7 percent and -13.2 percent, respectively, while the nowcast of the contribution of the change in real net exports to second-quarter GDP growth increased from -0.11 percentage points to 0.35 percentage points.
The previous forecast was on June 27 at 0.3 percent. The model rose from 0.3 percent to 0.7% on June 28 on Advance Economic Indicators (inventories and international trade in goods).
What Matters
The overall number is not what matters although the -1.0 percent estimate looks ugly.
What does matter is real final sales. The rest is inventory adjustment that nets to zero over time. That number is still an acceptable 1.5 percent, assuming it holds.
But how likely is that?
All About Revisions
I have been harping for two month that I expect negative revisions.
We subsequently had negative revisions to retail sales and today to personal consumption expenditures.
Are CFO’s in la-la land expecting positive GDP?
At least, they are not telling us the “Consumer is Strong.”
Personal Income and Outlays
I am not sure what some of these economists are smoking with expectations ranging all the way up to a 1.1% rise in PCE.
We already had negative revisions to retail sales in May, so why would PCE rise?
It didn’t, in real terms. And as expected and announced by me in advance, we had negative revisions and then a weak report on top of it.
The net result of all the activity since June 27 was a dive in the baseline estimate to -1.0 percent.
However, and more importantly, the GDPNow forecast of Real Final Sales only declined to +1.5%.
That’s not recession territory if it holds, but why would it?
Looking Ahead
Looking ahead, I expect more weak numbers and more negative revisions.
The second quarter ended today, But the data lags.
We have a key ISM number next week, another retail sales report, more housing reports, and another personal income and outlays report.
Look at the trend folks. Where is it headed? And there is still a month’s worth of data coming in.
Personal Income and Spending: The Latter Much Weaker Than Expected in May
Meanwhile please note Personal Income and Spending: The Latter Much Weaker Than Expected in May
Real PCE decreased 0.4 percent in May; goods decreased 1.6 percent and services increased 0.3 percent. And we had big negative revisions to April.
I’ve Seen Enough, the US is in Recession Now, Q&A on Why
On June 22, I commented I’ve Seen Enough, the US is in Recession Now, Q&A on Why
This report and the negative BEA revision to first-quarter GDP strengthens my conviction that recession started no later than May.
It’s possible a recession started in the first quarter given negative BEA GDP revisions,
On June 29 I commented The Odds of Recession Starting in the “First” Quarter of 2022 Just Leaped
Despite a huge negative Q1 revision, I am still sticking with May as the recession start. See the above links for an explanation.
Powell: “We understand better how little we understand about inflation”
In case you missed it please see Powell: “We understand better how little we understand about inflation”
Powell: “Is there a risk we would go too far? Certainly there’s a risk. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.”
Powell is committed to whipping inflation even at the expense of recession. That means a recession is now baked in the cake, sooner not later.
This post originated at MishTalk.Com.
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Mish
1. How extensive and contagious were the “tulips,” i.e. crypto and tech story stocks? The Panic of ’08 was triggered by rampant housing finance fraud that corrupted the mortgage-backed securities business. That’s a huge, critical economic driver in the United States, and the result was a return to traditional lending benchmarks. Is there anything out there now that’s comparable? I’m not saying there isn’t, but I don’t see it. Bull markets always entail some fraud and stupid risk taking, but still, how big this time?
2. The execution of Powell’s declared promises to unwind the balance sheet and raise fed funds. It’s delicate. A big part of me wants to get this corrected fast and big, but then I recall Andrew Mellon’s advice to Herbert Hoover. The Great Depression was a life-shattering event in this country.
What will Powell do? My WAG (wild-a** guess) is jack up fed funds and chicken out on the balance sheet. If I’m correct, we’ll have a stock market crash to 2,500 and ongoing inflation.
I am puzzled by one thing. If the technical definition of recession is two consecutive quarters of negative real GDP growth, wouldn’t the recession have started in the first of those quarters? You allowed for that in your post but also suggested it might’ve started in May. It’s a bit of a condundrum in my mind.
That said: congratulations! I’ve hopped back into the cable TV market channels (Bloomberg, CNBC, FoxB) and watched so many fund managers talk their books and their hopes in the face of growing evidence that a recession has already begun. Every time I heard some fool project that there wouldn’t be a recession until ’23 or even ’24, the only thing that saved my TV from being taken out by a brick was that replacing it would have entailed a couple thousand bucks and a 150-mile roundtrip.
I had forgotten just how unskilled most economists are when it comes to predictions. The last few months have reminded me that I have no less reason to be a cynic about economists than I ever was. Mish, ya nailed it. Kudos to you.
Since 1979, we have been blessed by two outstanding Fed chairmen, Volcker and Greenspan. Now, they’re human beings so on their very best days they got it three-quarters right, but it was enough. Bernanke was quite a figure. Did what had to be done, but I fault him for not sterilizing QE. Now we have Powell, who doesn’t appear to know what he’s doing, and Janet Yellen, a Treasury secretary who’s qualified to do nothing more important than wait tables.
The next year or so is going to be quite a ride. I say a year, but it’s going to last longer. But the die will be cast in the next year. God help us all.
Whether he hung out with the right or wrong presidents matters little to me by comparison. No one’s perfect. We are human beings, and we will screw it up. That said, on the Fed’s core mission, I give both Volcker and Greenspan A+ grades.