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The Atlanta Fed GDPNow forecast dipped to 1.3% following the Census Department's Advance Economic Reports.

The New York Fed Nowcast model is 1.4% as July 19.

Big Difference?

Despite the apparent tiny difference between the models, the underlying assumptions may be quite different.

Whereas GDPNow breaks out inventory adjustments, Nowcast doesn't. So we cannot say for sure if the models are really in agreement.

Real Final Sales

GDPNow has "Real Final Sales" at 2.4%.

That is the true bottom line GDP estimate as inventories tend to zero over time.

One Heck of an Inventory Adjustment

The difference between the GDPNow base forecast and Real Final Sales is inventory.

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Pat Higgins, GDPNow creator commented today "After this morning's Advance Economic Indicators and advance durable manufacturing reports from the U.S. Census Bureau, the nowcasts of the contributions of inventory investment and net exports to second-quarter real GDP growth decreased from -0.97 percentage points and -0.50 percentage points, respectively, to -1.09 percentage points and -0.63 percentage points, respectively."

The inventory adjustment takes about 46% off the GDPNow estimate. That's quite a lot.

Advance Reports

  1. Advance Durable Goods: May-June Revision Ping-Pong Match Continues with Durable Goods
  2. Advance Trade: Collapse in Trade: Exports Down 2.7%, Imports Down 2.2%
  3. Advance Inventories: Inventory Report a Bit Weaker than Expected

Advance GDP

Tomorrow the BEA will release its initial (advance) GDP estimate for the second quarter. Pay attention to real final sales, not the base GDP report.

A reader commented "Anyone trying to prove a point with tomorrow's report - good luck!"

I agree with that assessment as GDP is a hugely lagging indicator.

But my point is there is a big difference in current interpretation.

Mike "Mish" Shedlock