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A Huge Surge in Government Spending Drives Up GDPNow Forecast

October 26, 2022

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7:01 pm

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27 comments

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Economics

GDPNow data from the Atlanta Fed, chart by Mish

Chart Notes

The blue line is the base forecast. It is about all the public sees or hears about when the BEA releases its GDP report.
The red line is Real Final Sales (RFS). That is the bottom line estimate for the economy.
The yellow line (new this month) is RFS to domestic buyers, the rest is exports.
The green line (also new this month) is RFS to private domestic buyers. It excludes government and an exports.

Although it’s October 26, the recent data reflects changes in September due to report lags.

GDPNow Current Estimate

Please consider the October 26 update to the GDPNow Forecast for Q3 GDP, emphasis mine.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 3.1 percent on October 26, up from 2.9 percent on October 19. After recent releases from the US Census Bureau, the US Department of the Treasury’s Bureau of the Fiscal Service, and the National Association of Realtors, the nowcast of third-quarter real government spending growth increased from 2.4 percent to 3.8 percent, while the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth decreased from 2.23 percentage points to 2.19 percentage points.

This is the last GDPNow forecast for the third quarter. The first GDPNow forecast for the fourth quarter of 2022 will be on Friday, October 28.

Spotlight on Current Numbers

Base Number: 3.1 Percent
RFS: 3.1 Percent
RFS Domestic: 0.8 Percent
RFS Private Domestic: 0.2 Percent

Federal Debt Held By the Public

That chart is through the second quarter of 2022. It’s guaranteed to rise for the third quarter.

Federal Government Outlays 2021 vs 2022

July 2021: $564 billion
August 2021: $439 billion
September 2021: $524 billion
July 2022: $480 billion
August 2022: $523 billion
September 2022: $917 billion!

Data from US Treasury Statements.

Flashback September 15 2022

On September 15, I reported GDPNow Forecast for Q3 Plunges to 0.5 Percent on Weak Consumer Spending

Here are a couple of pertinent comments I made in that post.

Government spending added 0.6 percentage points to RFS and now helps to prop up the economy.

Quick – Send more money to Ukraine and escalate student loan writeoffs to aid spending.

What Happened Next?

We had a massive surge in the base forecast from 0.3 percent to 3.1 percent.
Meanwhile, RFS Private surged all the way to (drum roll please) to 0.2 percent.

Hooray, recession is postponed, assuming the GDPNow estimate is in the ballpark. Lovely.

Exports and government spending led the surge. How much of those exports were military aid?

Blue Chip Forecast

The Blue Chip professional forecasters do not seem as convinced as the Atlanta Fed and I am not either, but the Blue Chip data lags. It’s only through October 5.

The GDPNow model may or may not have gone a bit haywire on trade balances and government spending. We find out tomorrow.

But there is a lesson here: Don’t underestimate a determined president’s ability to boost spending ahead of elections.

This post originated at MishTalk.Com.

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27 Comments

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Rbm

3 years ago

Just a statement no stand on any issue.

Historically i thought governments spent money during recessions to turn the economy around. Somewhere in the last 40 years we stopped paying it back during good years.

vanderlyn

3 years ago

Reply to Rbm

RAYGUNOMICS. outlined by old WSJ editor. when Rs have whitehouse spend like santa claus. when they don’t have white house, make believe you are a fiscal conservative. the joke is on vast majority of Rs i’ve known past 45 years. of course there is NO difference in Ds or Rs with printing and borrowing and taxing or war……………..only knuckleheads and dimwits haven’t caught on.

Rbm

3 years ago

Reply to vanderlyn

Least the dems seem to have a tax associated with their programs.

Rep game seems to be tax cuts. Underfund the government. Then complain about how inefficient the government is and complain about how much debt were in. I’m sure they don’t run their companies like that.

Salmo Trutta

3 years ago

The BEA reported 2.6% 3rd qtr. R-gDp. So, N-gDp is still too high.

Salmo Trutta

3 years ago

Reply to Salmo Trutta

But EJ Antoni said: “All of GDP growth last quarter was due to this decline in imports and an increase in exports.”

“According to Dr. Milton Friedman, the main reason for the non-neutrality of money in the short-run is the variability in the time lag between money and the economy.”

We’re about to see if the 2yr rate-of-change in money flows is working:

Parse date; R-gDp; Inflation

07/1/2022 ,,,,, 0.088 ,,,,, 1.195

08/1/2022 ,,,,, 0.124 ,,,,, 1.280

09/1/2022 ,,,,, 0.072 ,,,,, 1.143

10/1/2022 ,,,,, 0.093 ,,,,, 1.141

11/1/2022 ,,,,, 0.119 ,,,,, 0.906 deceleration

12/1/2022 ,,,,, 0.112 ,,,,, 0.594

01/1/2023 ,,,,, 0.107 ,,,,, 0.603

02/1/2023 ,,,,, 0.104 ,,,,, 0.543

03/1/2023 ,,,,, 0.111 ,,,,, 0.459

GruesomeHarvest

3 years ago

Yes, a boost before the election and then collapse. Biden is also emptying out the SPR and expects to fill it back up with sub $80/barrel oil. Good luck on that one! Our leaders are so short sighted. Their stupid foriegn policies and green policies are making what would be a very bad situation much worse. Expect American prestige in the world to fall precipitously in the next few year. Most countries are ignoring Biden’s stupid sanction policy and more will follow. I wouldn’t be surprised to see NATO fall apart after the European riots this winter over the destruction of the Nordstream pipeline lifeline. Yeah Brandon! And you thought Trump was bad!

KidHorn

3 years ago

Our GDP goes up because we make armaments, send them to Ukraine, and have them promptly destroyed by Russia. The great news is this can continue forever. Look at Syria as an example.

paddy

3 years ago

usa exports of finished petroleum product [because people need to eat more than drive] have been huge since the biden’s proxy war and its sanctions which are business development for usa refineries!

export fuel will help gdp print for 3rd qtr

vanderlyn

3 years ago

Reply to paddy

in order of needs. driving low. eating important, perhaps 3 days without meals, water more important, especially in dry climates, air is most important. can’t go long without air. we all can live without homes. just peruse any amerikan city or town or even out in the country now.

JRM

3 years ago

See the White House needed to fudge the numbers before the election!!!

Watch revisions downward after the Nov election, and MSM will spin the revisions proof the Republicans are destroying the economy, even though they have not taken control yet!!!

Zardoz

3 years ago

Reply to JRM

The majority of voters don’t even know what GDP means.

vanderlyn

3 years ago

GDP has always been a number for knuckleheads to care about. making bombs and destroying them in wars count. as do other dumb government things. told this blog this fact as many other of my pals over decades. PPP is a better gauge to compare from state to state or country to country. on health of an economy. hell the big mac currency gauge the economist uses is 10x better imho. and that’s tongue in cheek. shadow stats has best source for reality of stats in economy. inflation is raging. jobs plentiful. we are all poorer than we were 2 years ago.

Maximus_Minimus

3 years ago

Reply to vanderlyn

Beside PPP, you didn’t account for adrenaline-shot economy, i.e. activity due to counterfeit money printing and artificial interest rates.

Matt3

3 years ago

That’s a huge increase in government spending in September. What did they spend the money on? Was it all allocated earlier and just spent now?

Tony Bennett

3 years ago

Reply to Matt3

Good question. I compared the 2 Septembers and bulk of discrepancy seems to be canceling student loans coming home to roost (once student loans canceled … they show up in deficit / debt to be borne by taxpayer) … though I thought cancellation still in limbo.

Federal Direct Student Loans

September 2021 … $87.547 billion

September 2022 … $409.713 billon

shamrock

3 years ago

Reply to Matt3

Student loan writeoffs.

Mish

3 years ago

Reply to shamrock

I believe it is student loan cancellation and question if the impact on GDP is what GDPNow thinks.

We find out soon enough.

Zardoz

3 years ago

Reply to Mish

Wouldn’t be sure if the relief doesn’t happen. Seems like something the president doesn’t actually have the power to do.

pemdas1

3 years ago

Reply to Matt3

I think you are right. I work with a school that received $750,000 in a federal grant from one of the COVID bills. That money is held in escrow by the government, and for big projects which have lead time, like new windows, is just being spent now.

ColoradoAccountant

3 years ago

The Federal Debt increases faster than the budget deficit due to the expenses that are not included in the budget, like entitlements.

Tony Bennett

3 years ago

“Don’t underestimate a determined president’s ability to boost spending ahead of elections.”

…

Yes.

Despite record tax revenue deficit FY22Q4 widened > $300 billion over FY21Q4. Fiscal year ends September 30th.

Federal Government outlays for last 3 months year over year.

July 2021 … $564 billion

August 2021 … $439 billion

September 2021 … $524 billion

July 2022 … $480 billion

August 2022 … $523 billion

September 2022 … better sit down … $917 billion

https://www.fiscal.treasury.gov/files/reports-statements/mts/mts0922.pdf

Mish

3 years ago

Reply to Tony Bennett

Thanks

Will add to the post

worleyeoe

3 years ago

Reply to Tony Bennett

And that doesn’t include the insane local & state spending. With home prices being so sky high, local governments are just raking in enormous amounts of increased property tax revenue, resulting in a TON of capital spending at the local level.

And we all know this will only break once housing tanks a good 20%+. The love raising your property value quickly but are SLOW to drop it when housing tanks.

JRM

3 years ago

Reply to worleyeoe

To lower your property taxes, you have to have a property tax accessor come in and price your property!!!

Quagmire46

3 years ago

Reply to JRM

I did have the local assessor come to my home to evaluate my property. I was armed with comparable properties’ assessments. When the discussion was over my assessment went down by about 20%. It really was over assessed. My taxes have been lower ever since. Glad I did it. Local assessors have every incentive to raise evaluations when prices are rising, but no interest in lowering evaluations when prices fall. It’s on the owner to initiate the change.

KidHorn

3 years ago

Reply to worleyeoe

We get re-assessed every 3 years. It’s always lower than my house would sell for. I think they play a game of raising the rate and lowering the assessed value. People look at the assessed value and feel they’re coming out ahead.

vanderlyn

3 years ago

Reply to Tony Bennett

wait until 2024. GDP is a joke of a number to get caught up on, if the goal is knowledge and trading and investing……….

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A Huge Surge in Government Spending Drives Up GDPNow Forecast

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