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Baseline GDPNow Forecast Drops 50 Percent Since March 23, But Final Sales Still Strong

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28 comments on Baseline GDPNow Forecast Drops 50 Percent Since March 23, But Final Sales Still Strong

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GDPNow data from the Atlanta Fed, chart by Mish

Please consider the GDPNow Forecast for 2023 Q1 as of April 3, 2023.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 1.7 percent on April 3, down from 2.5 percent on March 31. After this morning’s construction spending release from the US Census Bureau and the Manufacturing ISM Report On Business from the Institute for Supply Management, decreases in the nowcasts of first-quarter real personal consumption expenditures growth and first-quarter real gross private domestic investment growth from 4.6 percent and -7.3 percent, respectively, to 3.7 percent and -8.5 percent were slightly offset by an increase in the nowcast of first-quarter real government spending growth from 1.7 percent to 2.1 percent.

Synopsis 

Since March 23, the baseline GDPNow forecast has fallen over 50 percent from 3.5 percent to 1.7 percent.

However, the number to watch is Real Final Sales (RFS). The difference between RFS and the baseline forecast is Change in Private Inventories (CIPI) that nets to zero over time.

Miserable ISM Numbers

Chart and excerpts below by permission from the Institute for Supply Management ® ISM® 

For discussion of the numbers that sent GDPNow reeling, please see Manufacturing ISM Contracts for the 5th Month, With New Orders Falling Rapidly

Revisions

If RFS remains strong and is not later revised lower, the NBER is unlikely to declare a recession.

But revisions have been hugely negative. 

Real Income Was Negative in 2022 Q4, Big Negative Revisions to GDP

Real Gross Domestic Product (GDP) and Real Gross Domestic Income (GDI) 2022 Q4

Significant Negative GDP Revisions Are Consistent With Recession

On March 31, I noted Real Income Was Negative in 2022 Q4, Big Negative Revisions to GDP

Real Gross Domestic Income was -1.1 percent in 2022 Q4 with RFS +1.1 percent. GDP and GDI are two measures of the same thing. Which do you believe?

Even if you believe RFS, please note that RFS private domestic was 0.0 percent. The rest was government spending and exports aided by the war in Ukraine. 

As I have commented many times, heading into recessions the revisions will tend to be heavily negative. Coming out of recessions, revisions tend to be positive.

Money Supply Is Headed for 6th Month of Contraction

Money supply is also consistent with recession. As noted on March 29, Money Supply Is Headed for 6th Month of Contraction

We have not seen money supply declines like this since the Great Depression.

The contrarian position isn’t that a recession will come later, but rather that it’s already started.

This post originated on MishTalk.Com.

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Mike Shedlock

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28 Comments
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Doug78
Doug78
3 years ago
Two day reversal on oil.
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Tony Bennett
Tony Bennett
3 years ago
Normally, I don’t link stuff like this … but (very) good … couldn’t stop reading.
Next Level Thinking
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Doug78
Doug78
3 years ago
Reply to  Tony Bennett
It’s a big load to take on such a profound issue.
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  Tony Bennett
Too long and conspiratorial.
Maybe SVB just did what everybody else: invested in dodgy assets, and longer dated treasuries when everything else was ZIRPed.
Which brings back the question, what other hidden mines are about to explode.
The too-big-to-fail banks should have rescued SVB, not by printing presses.
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Doug78
Doug78
3 years ago
Reply to  Maximus_Minimus
Maybe it was just a vanilla bank failure but writing it up as a conspiracy is so sexy.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Maximus_Minimus
My take was written as blue print … not how it actually happened (in this particular case).
China does play the Long Game.
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Doug78
Doug78
3 years ago
Reply to  Tony Bennett
The “long Game” is just an excuse to explain away present failures. China, like other countries, has had throughout its history had to deal with rapid changes, none of which could have been anticipated and planned for. They are trying to figure things out as they go along like everyone else.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Doug78
So says the guy all last year proclaiming sanctions working and Russia going down.
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Doug78
Doug78
3 years ago
Reply to  Tony Bennett
Tell us how well Russia is doing now. The sanctions are working. Even Putin had to admit that. Keep up on the news. Actually look at what I was saying a year ago and most of it has come true.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Doug78
“Booming oil exports to Asia and extraordinarily high gas prices brought a flood of money into Russia, which posted an all-time record current account surplus of $227bn at the end of the year – more than twice the previous all-time high of $120bn posted at the end of 2021.”
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Doug78
Doug78
3 years ago
Reply to  Tony Bennett
Better look at this:
and this:
Much more up to date.
Russia’s income surge is over.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Doug78
“According to our estimates, since the beginning of the war, Russia earned EUR 325 billion in revenue from fossil fuel exports.”
…
Sounds right.
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“Russia’s income surge is over.”
…
As it is for every OPEC country … price per barrel down yoy … much to the consternation of inflationistas.
Anyway, 2022 the year in question.
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Doug78
Doug78
3 years ago
Reply to  Tony Bennett
See. My sources are good. You forget to mention that that surge came in 2022 and since the cap came in in 2023 and the elimination of the Eu as a client Russian oil and gas revenues have more than halved. This comes at a time where the cost of the war in Ukraine is draining the cash reserves that Russia has. The emergency reserves will be gone before the end of the year. With the discounts Russia has to give the profits per barrel are starting to look very thin now. I am sure they are hoping for the Opec cuts will do the trick but it won’t.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Tony Bennett
Nor does it have to be China.
This “blue print” could be used by hedge funds to target smallish banks that Federal Reserve Bank does not care about. Take any $5 billion to $10 billion bank. Due to mismatch of interest rate duration everywhere unrealized losses are just SITTING there.
What would Gordon Gekko do??
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  Tony Bennett
It would benefit from an explanation, what is the normal, red or blue text.
When you say, China plays a long game, it contradicts the meme that it is about to move on Taiwan. It can move half-way, too: islands belonging to Taiwan are just few miles away off mainland China, but I don’t think so.
Recommended reading, a white paper about the challenges of Taiwanese semiconductor industry.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Maximus_Minimus
China has talked reunification for decades. Not long enough?
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Tony Bennett
Tony Bennett
3 years ago
The doorstop (and vix) having a good day (hit 52 week high) … something afoot …
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Casual_Observer2020
Casual_Observer2020
3 years ago
I think the US will soon be if not already fighting two wars simultaneously against China and Russia. Don’t say you weren’t told or warned.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Casual_Observer2020
re: China
I’d wager good money Xi will make a move on Taiwan. But speed (72 to 96 hours to accomplish) + ingenuity ‘may’ preclude from US going toe to toe. Fait accompli.
China’s problem is how to minimize US losses (there will definitely some) to avoid counterattack.
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Doug78
Doug78
3 years ago
Reply to  Casual_Observer2020
No because the CCP can’t afford to lose that war or have it last much longer than planned. They are watching Russia and know that Putin’s head has a good chance on ending up on a pike.
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TexasTim65
TexasTim65
3 years ago
Reply to  Doug78
It’s possible are waiting on Russian to finish off Ukraine because they need Russia support (not military but rather resources in case taking Taiwan lasts longer than expected).
Heck if you want to go down conspiracy theory rabbit holes you can imagine they are plotting multiple take overs together. China supports Russia into Ukraine then Russia supports China into Taiwan and when the US responds to China, Russia makes a move on Latvia/Lithuania/Estonia in an effort to bring Kalingran directly back into Russia rather than being totally isolated. At that point the USA has to decide whether to let Taiwan go or Latvia/Lithuania/Estonia go since it won’t be able to fight a 2 front war unless it’s a nuclear one.
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Doug78
Doug78
3 years ago
Reply to  TexasTim65
They are probably wondering if Russia can even keep what they have till now conquered. As for Russia supporting China in taking over Taiwan I wonder what will they use to support China. They no longer have the men and their equipment is largely gone or will be soon. Their navy has a few ships that will be sunk easily so it’s left to their submarines which are decent. A war over Taiwan would bring in Japan immediately. They even said it. Japan has a very good fleet also and is very good at the anti-submarine stuff.
Objectively the reason to have good armed forces is to make a potential adversary worry that if they start a war they might not win it and with China that worry is growing with the poor performance of Russia. Russia as an ally would be more like Italy in WW II. Basically a big drain on resources giving little in return. The “window of opportunity” argument equally is suspect now since maybe that window is no longer open but already closed.
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Salmo Trutta
Salmo Trutta
3 years ago
Our means-of-payment money supply has been decelerating.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Salmo Trutta
How about deteriorating rather than decelerating?
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ColoradoAccountant
ColoradoAccountant
3 years ago
I remenber in the 80’s going to New York to explain to Moodys and Standard & Poors why my client needed to borrow a whole heck of money to build prisons. The analyst were young like me. I got to explain why the Gottis and dictators from Panama were in prisons in Colorado. The dogs could outrun any human down the Arkansas River Valley. We cut the crime rate in half. We built prisons just like they are doing in Central America now. Its not that hard.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  ColoradoAccountant
Perhaps the US should execute more people without trial or even arrest just like they are doing in Central America now.
It’s not that hard.
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Thetenyear
Thetenyear
3 years ago
What’s going on? Nothing unusual.
In a typical quarter about 80% of the readings are overstated compared to the final reading. Based on the chart it looks like the current reading is lower than about 80% of prior readings.
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HippyDippy
HippyDippy
3 years ago
Don’t worry, I’m sure the fantastically wise leaders that we have can make this seem like the good old days. As in the pre-industrial revolution type good old days. All these years the powers that cower have been telling us we need to shut up, own nothing, and be happy about it. Of course, it’s just blunders that are putting us in that position right now. Just don’t forget to vote harder this election. What a bunch of hooey.
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