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
Early signs of deflationary spiral. Warsh wont lower rates much the way his predecessors did.
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.
Correct. Small farming families are being hit the hardest as they are not prepared to handle the leverage and risks of modern farming. They compete against well financed corporate farms that own thousands of acres of mono cropped land with efficiencies they can only dream of.
Worse, they are a voting block that supports a regime that is actively harms them through tariff wars and outright bullying of neighbors that can out compete them.
Input costs are spiraling upward and crop prices are relatively stagnant as many foreign markets are justifiably boycotting American products.
Their belief systems do not allow the flexibility to change with the markets and figure out how to grow high margin niche products.
Accumulating bankrupt farms is a profitable avocation.
Perhaps you should check in with a professional if you think someone else is responsible for your problems. In my experience ~ being well prepared, disciplined and thoughtful results in both happiness and financial success.
If all fails, you can run away…
😉
Re-read my comment farm boy. I said, “All questions related to a deteriorating economy, quality of life or anything bad going on in your life”
On the one hand, you brag about having your “little paradise” in farm world complete with an amazing community then you point out how they are all going bankrupt and moving away. So which is it? Why don’t you do some of that prepared discipline and thoughtful thinking and tell me where that leads long term. How much of a “community” are you going to have when they all go bankrupt?
At no point did I mention me or any of my problems so it seems you are projecting again. You are smart enough to know what’s coming which is why you get triggered by my comments. It’s classic “cognitive dissonance” where you desperately want to believe your farmboy life is amazing but reality is setting in.
I am merely responding to the endless whining and complaining here from commenters about birthright citizenship, inflation, jobs, immigration, etc.
But I assure you that Trump will screw you hard despite all the preparation, discipline and thoughtfulness. Then when your farming community is decimated and you’re all alone, you will wish you had the foresight to exit at the right time.
😎
By the way, on July 1 I was done working. No more FICA payments to the leeches from me. I will be leaving by the end of the month.
Is it the lower price of oil?
The US was/is exporting huge quantities of oil and refined products. That price has fallen dramatically over the last 10 days as Trump became desperate for lower prices for the 4th of July celebration of dependence on the oligarchs.
The MOU creates the false impression that peace will somehow materialize in the Middle East despite over a hundred years of continuous war.
Rest assured that on the 5th of July, the bombs and rhetoric will re-commence.
The notion of peace is simply unrealistic in a world of theocratic governments.
The US has initiated more than half of all wars since 1947. Iran hasn’t initiated any wars. Since the ascendance of the CIA as the top dog of the deep state, the US has adopted the imperial theocracy of war and color revolutions.
Real GDP is price-adjusted. So the answer to your question is NO.
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.