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GDPNow Third-Quarter Forecast Jumps to 2.5 Percent, Recession Off?

August 10, 2022

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5:17 pm

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27 comments

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Economics

GDPNow data from Atlanta Fed, chart by Mish

Please consider the August 10 GDPNow Forecast.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2022 is 2.5 percent on August 10, up from 1.4 percent on August 4. After recent releases from the US Bureau of Labor Statistics and the US Census Bureau, the nowcast of third-quarter real personal consumption expenditures growth, third-quarter real gross private domestic investment growth, and third-quarter real government spending growth increased from 1.8 percent to 2.7 percent, -0.3 percent to 0.2 percent, and 1.4 percent to 1.7 percent, respectively, while the nowcast of the contribution of the change in real net exports to third-quarter real GDP growth decreased from 0.35 percentage points to 0.30 percentage points.

Watch Real Final Sales

The number to watch is Real Final Sales, not the baseline GDPNow estimate. The difference between the numbers is inventory adjustment that nest to zero over time.

RFS is the bottom-line estimate for the economy.

Much of GDP changes very little throughout the quarter (military spending, Medicare, Social Security, food stamps, etc.)

It’s cyclicals (durable goods and housing) that tend to drive expansions and recessions.

Why the Jump

The last GDPNow forecast was on August 4.

The jump was not due to today’s CPI report but rather the blowout jobs report on August 5.

I’m Calling BS on the Second Straight Amazing Jobs Report, Understanding Why

*Nonfarm Payrolls vs Employment Level. Chart by Mish. One set of numbers is wrong.*

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

Synopsis Since March

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

The household numbers are admittedly noisy, but a five month divergence now stands out.

In expanding economies, discrepancies tend to resolve higher. At turns, discrepancies tend to resolver lower.

I suspect labor turnover and retirements have seriously distorted payrolls and at least some of this strength will be taken away.

Regardless, I’m calling BS. At least one set of numbers is seriously wrong.

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. If so, this forecast jump will be short lived.

There are three retail sales reports coming and a myriad of housing reports. Those will hold the key to the third quarter, not the July jobs report.

Cyclical Discussion

July 12, 2022: Cyclical Components of GDP, the Most Important Chart in Macro
July 14, 2022: A Big Housing Bust is the Key to Understanding This Recession

Housing will be another big bust this quarter. And durable goods rate to follow housing. Manufacturing rates to be negative.

Hopes for the quarter rest solely on consumer spending and falling inflation. But don’t count on strong retail sales.

Add it all up and you have a third quarter of negative GDP.

This post originated at MishTalk.Com.

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27 Comments

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Oldest Most Voted

Jeff Dog

3 years ago

Not a recession yet. A recession is defined as when your neighbor loses his job.

worleyeoe

4 years ago

We were never in a recession, and it’s now looking like the Fed is going to pull off, at least initially, a soft landing. 30YFRM have been jumping up and down for the past week. MND has it at 5.18% as of today. It’s almost certain to fall below and stay below 5% in the next two weeks. Thus far, all higher mortgage rates have done is slowed down the blistering YoY increases in prices to a meager 17.3% in June. Unless something comes out of nowhere, we are extremely unlike to see that % go negative in the next 12 months. By the end of Q3, housing will have stabilized.

Everyone can stop worrying about a recession. Period. The Fed will raise the FFR by 50 basis points in September and then 25 basis points increase in October with Nov & Dec starting the pause. So, the FFR will top out the year at 3.25%, or exactly where the Fed said it would land.

Why initially? We’ll CPI will continue to fall throughout the year, making it harder for the Fed to keep raising the FFR past October. The pickle though is that housing may not see widespread price declines. Sure, YoY price increases will drop into the single digits over the winter, but next spring housing will heat back up. At this point, the Fed will have to decide if they’re going to put on their big boy pants and start selling MBS off to push 30YFRM back up above 5.5% through next year. It’s always been about housing, this time around and past recessions.

I just don’t see housing deteriorating all that much more once rates fall below 5%. The Fed FFR pause could easily last 6 months, but I don’t see rate cuts throughout 2023. Without job losses there won’t be rate cuts. And job losses just don’t seem to be in the cards so long as housing stabilizes.

JRM

4 years ago

Tells me that any organization tied to the US Gov’t has been told to “PROPAGANDA” the economy in favor of the BIDEN REGIME!!!!

To try to stave off a RED WAVE in Nov!!!

8dots

4 years ago

The Rhine was drained. Barges can hardly sail from/to Rotterdam port. A new heat wave might shut traffic completely.

Russian coal is ban in Rotterdam, because there is no room for it. Barges are moving at 1/3 capacity. Madam ECB cannot fight exogenous causes by raising rates to zero. Murphy law.

8dots

4 years ago

GNPN is flat. nothing wrong with that. It might move higher, spike, before moving down. SPX is rising in the last few days. By the end of the month it might turn down again. Things always change. SPX might make a new all time high, OR start a new downtrend from

a lower position. We don’t know what will happen next.

Christoball

4 years ago

These numbers whether right or wrong insure further rate hikes.

Bombillo

4 years ago

I’m getting economic outlook whiplash.

FromBrussels2

4 years ago

oh you fckn exceptional Yanks , lucky bastards you, provoking wars , thousands of miles away in none of your fckn business regions , and you are fckn thriving aren t you, fn s o bs ? …..How long for will this go on you reckon ? fck now someone will say I am a fn aussie… Answer me anyway….

PapaDave

4 years ago

Reply to FromBrussels2

How long will this go on?

A long time.

I predict that you will continue to write this garbage for the rest of your (apparently) miserable life.

FromBrussels2

4 years ago

Reply to PapaDave

My life is not miserable, not financially ,nor physically nor mentally, for the time being anyway , if you want to know ….YOUR fkn nation though is doing its best to,end it ALL….that much is obvious ….

PapaDave

4 years ago

Reply to FromBrussels2

Your life must be miserable. Every single post is constant complaining about things you have no control over. Poor ba*tard. My condolences.

Zardoz

4 years ago

Reply to FromBrussels2

Don’t be angry comrade… they are only stupid americanskis, grown bold and fat on non-potato foods. How they even manage to trick comrade Putin into invading we will never know. Now they make HIMARS pudding of brave Russian troops. We retreat victoriously from the country we not invade! Home in time for special Christmas Potato!

FromBrussels2

4 years ago

Reply to Zardoz

You ARE a fckn IDIOT, are you not ?

JRM

4 years ago

Reply to Zardoz

I see you’re all in on the “PROPAGANDA” being “SPOON FED” to us in the West by the US/Intel agencies MSM!!!

Zardoz

4 years ago

Reply to JRM

I see you learned a new word today, and are showing everyone you know how to spell it.

Misc

4 years ago

The blowout jobs report was because a few hundred thousand people had to get 2nd jobs.

It is not a sign of economic strength.

shamrock

4 years ago

Reply to Misc

The fact that the jobs are there is a sign of economic strength.

vanderlyn

4 years ago

Reply to shamrock

bingo. rich amerikans weened on 3rd base lifestyles like all in family, father knows best…….during golden era when the village idiot could live large. having 2 jobs is going back to old days when men and women worked 12 hour shifts, six days per week. feudalism 2.0 with big gulps and netflix and in debt idiots watching endless sports and wars on idiot box………..

JRM

4 years ago

Reply to shamrock

If you are “FORCED” to get another job is “NOT” a sign of economic strength!!!!

vanderlyn

4 years ago

Reply to JRM

forced to get a job????? preposterous. do the debt serfs in pax dumbf***istan shop till they drop and eat like elephants????? 3rd base simpletons.

Thetenyear

4 years ago

The forecast jump in each of the last four quarters has been short lived. GDPNOW peaks by the end of the first month then fades as reality sets in. I suspect this quarter will be no different. I’ll take Mish’s negative quarter call over government estimates all day long.

Speaking of ambitious forecasts that fade as reality sets in, Notre Dame is ranked fifth in the pre season college football rankings.

shamrock

4 years ago

Reply to Thetenyear

That’s the highest preseason ranking I can remember this century. 16 point underdogs in their first game too.

Billy

4 years ago

Someone should draw one of those cartoons with Jerome, Janet, and Joe standing around with a measuring stick to determine if we are in a recession or not. Then someone in the shadows could say “I told you before, the terms Gender and Recession have changed. Just like the term Inflation did in the 70’s.”

PapaDave

4 years ago

I don’t fret much over quarterly numbers. Whether its -1% or +1% for a quarter; I don’t care much. And whether it is technically a recession or not; its all a big yawn.

What I see longer term is continued slow growth for the next several years. And increasing energy demand. And increasing energy prices. Which will actually work to keep a lid on growth going forward, preventing growth from accelerating.

We will be stuck in a stagflationary environment. The big winners will be oil and gas companies. Got oil stocks?

worleyeoe

4 years ago

Reply to PapaDave

100% agreed. Renewables will struggle some in terms of showing profit, since the cost of materials has increased so dramatically. Put don’t fret, Uncle Sam is going to throw hundreds of billions of dollars at this stuff. Sure that overall spending is down considerably from 2020, but we’re still looking at a lot of money to be spent in the next three years or so. Lost of inflationary government spending to follow, including local governments who will not see reductions in property values to any great extent, keeping capital improvement budgets oversized.

Casual_Observer2020

4 years ago

What’s it called when you cherry pick models to fit an argument ?

Naphtali

4 years ago

Reply to Casual_Observer2020

Analytic Bullshitting.

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GDPNow Third-Quarter Forecast Jumps to 2.5 Percent, Recession Off?

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