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GDPNow Forecast for Q3 Dips to 1.4 Percent on Housing Weakness

Even if you believe in a big economic boost from the July jobs report, housing erased those gains and more for the GDPNow Real Final Sales estimate.
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GDPNow data from Atlanta Fed, chart by Mish

GDPNow data from Atlanta Fed, chart by Mish

The last GDPNow update was August 17 with the model GDP at 1.6%. 

Please consider the August 24 update to the GDPNow Forecast for Q3 GDP.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 1.4 percent on August 24, down from 1.6 percent on August 17. After recent releases from the US Census Bureau and the National Association of Realtors, the nowcast of third-quarter real gross private domestic investment growth decreased from -3.5 percent to -4.7 percent.

Base Forecast vs Real Final Sales

The real final sales (RFS) number is the one to watch, not baseline GDP.

RFS ignores changes in inventories which net to zero over time. This is a good reason to ignore the talk of two quarters of declining GDP being a recession.

RFS in the second quarter was positive. I stick with my assessment of a recession starting in May, assuming the upcoming data matches my forecasts.

Retail sales plunged in May after a strong April, and that's when housing started to crumble as well.

1.8 percent on real final sales is not recession territory, but I strongly believe that will not hold up. GDPNow forecasts tend to start out strong then fade as the quarter progresses. 

There is over two months of data for Q3 still to be seen and estimates are dropping quickly.

GDPNow Jumps on Jobs Data

On August 10, I commented GDPNow Third-Quarter Forecast Jumps to 2.5 Percent, Recession Off?

Models Don't Think

Models don't think. Humans can, perhaps incorrectly.

The baseline job numbers do not match 200,000 layoffs at Amazon, consumer sentiment, rising jobless claims (albeit from record low levels), warnings from retailers including Walmart and Target, layoffs at Walmart, and two warnings from Micron on demand for computer chips.

I smell huge revisions to the job numbers. 

Huge Job Discrepancies

On August 5, I commented I'm Calling BS on the Second Straight Amazing Jobs Report, Understanding Why

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Synopsis Since March

  • Employment -168,000
  • Jobs +1,680,000

The household (employment) survey numbers are admittedly noisy, and employment is yes or no whereas a person can hold multiple jobs, but a five month divergence of over 1.8 million now stands out as more than a bit unusual.

I suspect unaccounted for retirements picked up by the household survey with replacements erroneously added to the establishment (jobs) survey.

Whether or not jobs data is revised away, the model sinks with every housing report.

Long Period of Weak Growth

Jobs are a mirage, sort of. I actually expect them to be relatively strong this recession.

Lost in the debate over whether recession has started is the observation that it doesn't matter much either way.

For discussion, please see Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession

By long I do not necessarily mean continually. Rather I foresee economic weakness and flirting in or near recession for over a year.

This post originated on MishTalk.Com.

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