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First-Quarter GDPNow Forecast is Zero Percent and Falling Fast

Let's take a look at the latest GDPNow forecast and more importantly its current model assumptions vs Mish assumptions.
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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 0.0 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 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.

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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.

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.

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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