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First-Quarter GDPNow Forecast Dives to 0.6 Percent After January Income Data

Following the Bureau of Economic Analysis (BEA) January 2022 personal income and outlays report, GDP forecasts took a dive.
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GDPNow data from the Atlanta Fed, chart by Mish

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 0.6 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

  • 0.6 Percent GDP
  • 2.9 Percent Real Final Sales
  • -2.3 Percent Inventory Adjustment

The current estimate were the quarter to end now would be 0.6 percent for overall GDP, 2.9% for real final sales, and an inventory adjustment of negative 2.3 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 -2.3 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 Income and Spending data from the BEA, chart by Mish

"Real" means inflation-adjusted.

The dive in GDPNow stems from the BEA's income and outlays report on Friday. 

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

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Inflation adjusted, real disposable income actually declined for the 9th time in 10 months but I called it 8 of 9 because of stimulus distortions clearly visible in the next chart.

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

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

The difference between the yellow line and the red line is taxes.

The difference between disposable income and spending is savings. But most of the saving is from high wage earners, not the bottom half of the nation mostly living paycheck-to-paycheck.

The three rounds of fiscal stimulus, one under Trump and two by Biden are clearly visible.

The stimulus radically distorts month-over-month numbers and year-over-year numbers one year later. 

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

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

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.

This post originated on MishTalk.Com.

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