The plunge happened between June 24 and June 26, but the Atlanta Fed just posted results today.
Nowcast Plunge
- June 24: 3.1 percent
- June 25: 2.5 percent
- June 26: 1.2 percent
Email Exchange With Pat Higgin on June 25
Hi Pat
How much of today’s downgrade was a result of the upward revision to GDP by the BEA vs standard monthly economic reports?Can you parse the key reasons for the change a bit finer?
Thanks
Mish
Pat Higgins Response
Hi Mish – essentially all of the decline in the change in GDPNow’s forecast from July 17 to today was concentrated in personal consumption expenditures (PCE), whose forecasted contribution to GDP growth fell 0.5 percentage points relative to the July 17th forecast. The BEA had released April PCE data late last month, so revisions to that month in addition to revisions to the Q1 data could impact the forecast.
About 0.3 percentage points of the forecast decline in the PCE contribution to growth was concentrated in goods while the remaining 0.2 percentage points was concentrated in services.
For goods, it appears that April’s real “Net Purchases of Used Motor Vehicles” was revised down 9.3 percentage points [not annualized] by the BEA relative to what was published a month ago. So, most of the forecast downgrade for goods appears to be related to this one revision.
The model’s forecast for real services PCE decreased from 1.9 percent on July 17th to 1.4 percent today. The BEA revised annualized Q1 real PCE services growth from 1.8% to 0.5% today and there was a modest downward revision to the April/March growth rate as well.
The downward revision to the monthly growth rates – if you keep the May and June growth forecasts fixed — would imply a 0.5 percentage point reduction in the model’s forecast for PCE services.
This simplification doesn’t account for the model’s attempted anticipated revision [based on retail sales and international trade data]. But for most of the services basket, the model anticipates no revision by construction. So, the downward revision to data through April likely accounted for much of the change in the model’s forecast for services as well.
Best regards,
Pat
Thanks Pat!
What Happened on June 26, Reported Today?
This is much easier to explain.
The GDPNow estimated percentage point contribution for net exports fell from -0.59 percentage points on June 25 to -1.62 percentage points on June 26.
The contribution for net exports is still -1.62 percentage points on July 1.
That’s a decrease in net exports of 1.03 percentage points. It accounts for most of the plunge in the forecast from 2.5 percent to 1.2 percent.
On June 26, we had Advance Economic Indicators.
Advance International Trade
- The international trade deficit was $105.8 billion in May, up $22.7 billion from $83.0 billion in April.
- Exports of goods for May were $207.7 billion, $11.8 billion less than April exports.
- Imports of goods for May were $313.4 billion, $10.9 billion more than April imports.
The trade deficit rose by 27.4 percent in May.
After bragging about reducing the deficit in April, the administration went silent in May.
Also on June 26, Gross Private Domestic Development fell from 1.48 percentage point to 1.35 percentage points accounting for most of the rest of the plunge.
Somehow, I missed this advance report or I would have predicted at least some of the decline in the forecast we see today.
GDPNow Key Component Change
- Base Forecast: 3.1% on June 25, 1.2% July 1
- Real Final Sales: 2.7% on June 25, 1.3% July 1
- Real Final Private Domestic Sales: 3.5% on June 25, 3.1% July 1
The difference between the base forecast and real final sales is inventory adjustment which nets to zero over time.
Real final sales at 1.3 percent is the bottom line number for the economy.
Some prefer to look at real final private domestic sales. That’s a much better 3.1 percent.
GDPNow Estimated Contributions to 2026 Q2 GDP
The report is easy to spin however you want. Is your spotlight 1.2%, 1.3%, or 3.1%?
Real final sales at 1.3 percent seems like the right focus because it’s the bottom-line estimate. That has been my focus over the years.
However, I believe the Fed puts more emphasis on private domestic final sales. 3.1 percent would be a good, unalarming number for the Fed.
Nothing Alarming Except Inflation
Assuming something like the above plays out, the Fed will see more strength than weakness.
As of June 30, The Market Forecasts a 70.4 Percent Chance of a Fed Rate Hike Before the Election
Trump would scream if this happens.
A quick check shows the odds are up slightly to a 73.4 percent of at least one hike by the end of October. Click above for comments on rate hikes near an election.
The jobs report on Friday may have a huge impact on these estimates.
Of course, nothing is on auto-pilot now because inflation is stubborn.
Today’s ISM report, especially participant comments, put a huge spotlight on tariff-related inflation.
For discussion, please see Manufacturing ISM Up 6 Straight Months, Employment Down 33 Straight Months
Signing his name to 10.5 trillion in national debt in 5 years in office has failed to buy him >4% GDP growth. He will soon try 3 trillion a year,
Early signs of deflationary spiral. Warsh wont lower rates much the way his predecessors did.
logic and reason suggest you are correct and logic and reason suggest austerity will preceede the market corection. Butit won’t. austerity comes after not before, when eveeh thing else fails austerity works like liek a charm. /the fed wont inflate is out of existence nd can endure a debt deflation deperssion just fine.. Can you ?
This adjustment down is related – in part – to the Q1 real GDP being revised upwards (although I don’t remember seeing a post here about that).
Q1 revised upwards by 1/3 (1.6% to 2.1%)
Much of that revision was due to changes in imports – which are driving much of this change in Q2 – as Mish now mentions.
All questions related to a deteriorating economy, quality of life or anything bad going on in your life can be answered with my tagline….
Do worry, Trump, Walrus and the GOP will find a way to make things even worse.™
And now Trump says he won’t renew USMCA. Can’t wait to see more farmers go bankrupt. Sweet poetic justice served.
https://www.cnbc.com/2026/07/01/trump-usmca-canada-mexico-trade-treaty.html
Farm bankruptcies were up 46 per cent between 2024 and 2025, reaching levels last seen in the Farm Aid era in the 1980’s
Just so no one is confused about when this farmer problem started. In 2018, Trump began his tariff tirade. Biden kept going with them and Trump upped the ante and just said he won’t renew USMCA “the greatest deal ever.”
The 2018 Trump tariffs hurt farmers mostly through retaliation: China and other countries hit U.S. farm exports with their own tariffs, which cut demand and pushed crop prices down, especially for soybeans. Farmers also faced short-term cash-flow stress because they still had to sell or store each harvest while markets were disrupted.
Main effects
Longer-term impactThe bigger long-term problem was that some export relationships changed permanently or took a long time to recover, as other countries stepped in to supply China and other markets. A USDA-linked estimate cited in later reporting put mid-2018 to end-2019 U.S. agricultural export losses at more than $27 billion.
When my Dad graduated from college and started his professional agricultural practice in 1950 he met a young college professor who had ideas about how to improve farm income. Farmers and ranchers in America have been plagued with surplus crops and livestock depressing farm and ranch income since colonial America. The USA is a bountiful place. So Dad took this professor around to meet with his farmer and rancher clients to discuss the professor’s idea, which was basically to take taxpayer dollars and to buy surpluses at fair prices and to give them to the hungry of the world, including in the US, who were unable to buy them. The professor’s name was George McGovern. It became USAID. And Trump has completely fucked it up. Of the countries that cannot produce enough food to feed their people, the only big one that matters, because they can afford to buy it at market prices, is China.
But AI will continue to drive the stock market higher and higher and that is helping enough people that they ar willing to accept th other craziness.
If you think of it as GOPNow, it makes more sense.
Anecdotal observation on my part but the “feel” out on the Left coast is a bit of “horns are being pulled in” Have also noticed real estate home sales as real sluggish. Inventories rising, asking prices are still high. I’m one of many neighbors with 3% mortgages from the financial repression days…definitely not in the mood to sell.
Notice the same thing in my area and a lot of prices being cut – not substantially but 3 or 4%.
In the middle of PA, if you’re in town, home sales are brisk, and by that I mean going above list, sometimes with bidding wars at the open house, and the for sale signs often are mounted with the pending sign on them already.
At the headwaters, clean air, natural setting, largest stadium on earth by seating capacity that is not controlled by a dictator, excellent land grant research institution, local music scene, local breweries, endless miles of bike trails, everything you rarely get more than 1-2 off from this list in a major city.
You can keep your girders and gridlock
And taco and his clowns are just getting started. Just wait!
Next year will be even worse.
“Hold my beer”
– 2028
Thank you Mish always appreciated
Key drivers (per Pat Higgins’ response and the underlying data):
This is a warning light on momentum, It modestly supports lower yields and easier financial conditions in the near term, alot of people chomping about that on X though inflation and other concerns (oil etc) keeping Fed on the Fence
I will be interesting to watch employment after the World Cup is done = many claiming temporary boost may fall quickly
– of course Trumps 250 anniversary birthday party deserves a mention ( or maybe not ) I image millions were spent staffing that for the small crowd
Everyone – well at least me – watching to see Trump bomb Iran over the long weekend – probable he will try to enter Lebanon in my opinion rather than hit Iran again – we shall see
Trump ‘ I love the smell of bombs on a long weekend ‘ ( apocolypse now )
With 20 MM to gather in Tehran for the big funeral, doubling the population for a short while, if you read this and would be surprised if Trump threatened to annihilate Tehran during the funeral, you haven’t learned enough yet about what Trump is willing to do to salve his ego and flex his legit and illegit power.