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First-Quarter GDPNow Forecast is Zero Percent and Falling Fast

March 1, 2022

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6:53 pm

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26 comments

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Economics

*GDPNow data from the Atlanta Fed, chart by Mish*

The initial GDPNow estimate for the first quarter of 2021 was 0.9 percent on February 4. It’s now 0.0 percent.

The initial forecasts have been on the high side for at a year, then tend to sink as the quarter progresses.

Current GDPNow Estimate

0.0 Percent GDP
2.5 Percent Real Final Sales
-2.5 Percent Inventory Adjustment

The current estimate were the quarter to end now would be 0.0 percent for overall GDP, 2.5% for real final sales, and an inventory adjustment of negative 2.5 percent.

The real final sales number is the true bottom line estimate of the economy.

The overall forecast includes inventory adjustment which in this case is -2.5 percent. Inventories fluctuate to zero over time, making real final sales the important number.

The real final sales number is a very good figure actually.

But it’s very early in the quarter, at least as far as data reporting goes. And GDPNow estimates have tended to start out high, then sink.

Real Personal Income Declines for the 8th Time in 9 Months

Real Income and Spending data from the BEA, chart by Mish

“Real” means inflation-adjusted.

For discussion, please see Real Personal Income Declines for the 8th Time in 9 Months

GDPNow Assumption vs Mish Assumption

For now, the Atlanta Fed model assumes consumer spending will accelerate despite the fact that real income is declining.

My assumption is consumer spending will falter as stimulus wanes and the stock market dives.

The GDPNow spending forecast ticked up after today’s ISM report. But that is another known pattern that most often falters.

The Fed’s Preferred Inflation Measure Reaches Fastest Pace Since 1983

Inflation data from St. Louis Fed, chart by Mish.

For discussion, please see The Fed’s Preferred Inflation Measure Reaches Fastest Pace Since 1983

It’s inflation-adjusted spending and income that drives GDP thus the focus on the word real.

Macro Mavens

Steph Pomboy at Macro Mavens chimes in.

While everyone is understandably focused on the Ukraine situation, it is important to bear in mind (since any weakness will be blamed on that) that the economy here at home was already sliding FAST. Atl Fed now at 0% for 1q.

— steph pomboy (@spomboy) March 1, 2022

That’s the hook.

Don’t worry, it’s just Russia. Yeah right.

Meanwhile, we are careening towards recession with the Fed Fund’s rate still at the number for today. And that number 0.0%.

Europe is even closer to recession, if not there already, with negative central bank rates.

Good luck with that.

This post originated on MishTalk.Com.

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26 Comments

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Christoball

4 years ago

One of the problems with a contracting GDP is it is a sign that less new money will be borrowed into existence. Because interest and principle both have to be paid back, the interest part has to be accommodated by ever increasing debt. When the economy ceases to be able to supply ever increasing debt, or individuals begin to shun increased debt; a sort of cascading “delinquent payment derivative snowball” begins to grow. With such high debt loads as today; so many entities need payments from others, in order to have the resources to pay those that they are indebted too. This is why the Fed ends up eventually loosing control and so much has to be written off.

When an economy contracts, payments on loans begin to swallow up greater percentages of budgets. Payments will start to be prioritized according to self preservation. This reversal has a force of its own and the pendulum cannot be magically stopped. Economic gravity will run it’s course. For many this will become a much needed Jubilee as their debts are erased through default, and they will not go to debtors prison. They will have new beginnings. They will be spared the embarrassment of default, because their same predicament will be commonly expressed by others.

Roadrunner12

4 years ago

Bank of Canada hikes 1/4 pt as expected.

https://www.bnnbloomberg.ca/bank-of-canada-hikes-rates-for-first-time-since-2018-1.1731177

“The Bank of Canada is hiking its benchmark interest rate by 25 basis points to 0.50 per cent – marking the first time rates in this country have increased since 2018.”

vanderlyn

4 years ago

GDP IS A BOGUS NUMBER. COUNTS GOV SPENDING.

KidHorn

4 years ago

And with the inflation deflator being way understated, we’ll actually be deep in recession.

JeffD

4 years ago

From the just released semi-annual Federal Reserve Monetary Policy report:

“Therefore, the federal funds rate is likely to be constrained by its effective lower bound more frequently than in the past.”

In other words, giving an honest translation of what this really means, hyperinflation is in your future.

Carl_R

4 years ago

Reply to JeffD

You can’t have hyperinflation so long as the debt is denominated in your own currency. So long as the US can sell bonds denominated in USD, hyperinflation is impossible. The US does issue some inflation-adjusted bonds, and those would not count as being in USD. Germany had hyperinflation after WWI because their debt was denominated in gold. Some smaller countries have had hyperinflation because they had debt in USD.

JeffD

4 years ago

Reply to Carl_R

Tell that to the people earning dollar wages while living is the US. Inflation is a monetary phenomenon, and ZLB rates -> hyperinflation. If you don’t believe Milton Friedman, you are in denial, or as Nicholson said, “You can’t handle the truth!”

JeffD

4 years ago

Reply to Carl_R

Debt is being taken on to buyback stock rather than for growing the company and output via capital improvements. It’s The End of the economy and “Nobody saw it coming!”, right?

StukiMoi

4 years ago

Reply to Carl_R

If I owe people a few million, completely unbacked by anything, $Stukillars, exactly how would me printing more of them, hence inflating their supply, hence inflation, NOT be possible?

It is, OTOH, countries which can’t pay debt in own-printed currency, which have a harder time inflating their way out of debt.

The demarcation line between “inflation” and “hyperinflation” is entirely arbitrary. By any measure of real monetary stability, the orders of magnitude debasement of the dollar since 1911, is very much hyperinflation. Not quite as severe as in Weimar or Zimbabwe (one can always find an even bigger bogeyman out there, if one goes out searching for one), but pretty darned hyper nonetheless, for anyone whose standards are anything close to stability.

kpmyers

4 years ago

The initial GDPNow estimate for the first quarter of 2021 was 0.9 percent on February 4. It’s now 0.0 percent….Hey Mish, do you see the Fed reversing coarse on the rate hikes?

Mish

4 years ago

Reply to kpmyers

My position has not changed they will get in 1-3 hikes

whirlaway

4 years ago

Reply to kpmyers

I think it will be one and done and might play out this way:

March – too early to hike because of Russia

May or June or July – 25bp hike just once, followed by the usual “we will be data driven” and other such BS.

Sept and Nov – too close to the mid term elections, so no rate hike

Dec – no rate hike because we would already be in recession

Eddie_T

4 years ago

We were always going to have a real COVID recession. The 2020 slowdown got nipped in the bud with stimulus, but that was excessive and so now we have to pay for that with inflation….now we get the delayed effects and some more besides, lots of chickens coming home to roost.

Now we get to see if that causes oil price to collapse. I’m guessing with the Russia situation, and the decline in the shale patch, probably not so much.

Rbm

4 years ago

Reply to Eddie_T

Even before covid. Trumps tax cuts held off recession into covid. Were due.

MPO45

4 years ago

Reply to Eddie_T

The gloom and doom will largely and ironically depend on the boomers. Do you know what happened today? 10,000 boomers retired. Do you know what will happen tomorrow? 10,000 boomers will retire. This will repeat every day for the next 8 years until we hit 2030 and then 60 million boomers will all be over the age of 65. Let me say that again, 60 million boomers will be over the age of 65+ in the year 2030. Critical mass will hit in 2025.

I have no idea how many boomers will decide to keep working because they want to or have to nor do I know who the heck will do all the work needed to be done if they all decide to retire at 65 and go on social security and medicare. In the history of the US we haven’t had 1/3 of the population go on social services for income and healthcare, clearly boomers will continue to consume but not work or produce.

I do know that there will be firms that are big winners because they planned accordingly and there will be firms that will be big losers because they didn’t. Small businesses will get crushed over the next 8 years due to labor shortages.

Deep pocket corporations like Target are already contemplating $24/hour. It looks like $25/hour is on deck for 2023 or maybe even later this year!

https://finance.yahoo.com/news/why-target-is-hiking-its-minimum-wage-to-as-much-as-24-an-hour-174128459.html

Bring on the recession, I am well positioned in companies I think will bank coin over the next decade. Hint..hint…Apple and oil companies amongst others but doom and gloomers can load up on gold or bonds. Good luck.

Christoball

4 years ago

Reply to MPO45

“Do you know what happened today? ” 5,309 Boomers died today. Before they died they probably had $100,000 of medical care in their last year of life. This is just the reality. This is also an economic game changer.

https://incendar.com/baby_boomer_deathclock.php

Business Man

4 years ago

America is Back, Baby!

Can we put The Deplorable Children back in charge?

I would much rather a child with a rudimentary understanding of economics run things than the current “Adults In Charge” who seem to understand nothing but polling, optics and careening from one crisis to the next with hollow, knee-jerk responses.

Maximus_Minimus

4 years ago

Everything is too fluid to make any forecasts.

E.g. oil jumped by almost ten dollars (10%), and nobody knows where or when it stabilizes.

Tony Bennett

4 years ago

Hhmm, wonder how consumer sentiment holding up …

http://www.sca.isr.umich.edu/files/chicch.pdf

Jackula

4 years ago

Pick your poison, debt trap or liquidity trap, nice job FED!

Christoball

4 years ago

Could GDP already be negative and not have accurately factored in inflation????

Mish

4 years ago

Reply to Christoball

They tend to lowball inflation but probably not quite at 0% real final spending yet

Christoball

4 years ago

Reply to Mish

To say the least many sectors are probably already in the negative.

Tony Bennett

4 years ago

Reply to Christoball

Not just inflation. Economists poor at economic inflection points in real time (usually guided by the trend is your friend).

Take a peek at BEA’s excel spreadsheet on initial GDP estimates and subsequent revisions … all over the place … at times.

example:

The GFC recession started December 2007. Q1 2008 advance (first) estimate +0.6% … later revised to +0.9% … then +1.0% … YEARS later FINAL revision -2.3%.

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First-Quarter GDPNow Forecast is Zero Percent and Falling Fast

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