The BEA releases its advance (first) estimate of first-quarter 2022 GDP tomorrow. The Atlanta Fed’s final GDPNow Forecast is out today.
The final GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 is 0.4 percent on April 27, unchanged from April 26 after rounding. After this morning’s Advance Economic Indicators report from the US Census Bureau, an increase in the nowcast of first-quarter real gross private domestic investment growth was offset by a decrease in the nowcast of first-quarter real net exports.
Same as Yesterday? Not Quite!
The above blurb makes it sound as if there was no change, but there was.
Real Final Sales is the true bottom line estimate for the economy. The rest is inventory adjustments which net to zero over time.
The number to watch is not the headline number, but real final sales. Yesterday, the forecast was 1.6 percent, today it’s 0.9 percent and a week ago it was 2.6 percent.
My Comments Yesterday
Let’s flashback to my post on GDPNow yesterday First-Quarter GDP Forecast Dives to 0.4 Percent on Retail Sales Revision (emphasis added)
I’ll Take the Under
Real final sales at 1.6 percent is not a terrible number but it’s a far cry from 4.0 percent projection early in the quarter.
However, it’s a number falling fast, and I question the change in private inventories (CIPI) estimates as subtracting 1.2 percentage points from GDP.
Today’s update was based on retail and wholesale reports that came out today.
As a result of those reports, GDPNow revised inventories up 0.7 percentage points and real final sales down by 0.7 percentage points while the base number 0.4 percent remained the same.
How Many Fed Hikes?
That question came up again today on Twitter.
https://twitter.com/phil_mcalister/status/1519125250683904002
IMO the hike believers to 2.75-3.25% way overestimate neutral.
In a Tweet I said 2%. On reflection, It might be 1% or 1.5% with all this debt, certainly not the CPI.
And it changes with stock market wealth effect!
Curious what @DiMartinoBooth thinks.https://t.co/wYtIdIIjPk
— Mike “Mish” Shedlock (@MishGEA) April 27, 2022
The Fed Searches For the Neutral Interest Rate, Where the Heck Is It?
On April 20, I asked The Fed Searches For the Neutral Interest Rate, Where the Heck Is It?
One problem for the Fed is that neutral constantly changes. What’s neutral today is not neutral tomorrow. It changes with oil prices, war, and even the stock market.
Stock Market Wealth Impact
With every decline in the stock market, retired boomers will be more cautious on spending.
The stock market, junk bond bubble, and housing bubble all created tremendous incentives to spend money.
On the wealth effect, people bought new cars, went on trips, even bought second homes.
Few realize that asset bubble popping events are very deflationary. Spending will decline. Inventories sit in warehouses with still more coming in.
Oil prices will decline. Yet every day someone posts on Twitter things like “Inflation is 10 percent so the Fed will need to hike to the moon.”
Housing-Adjusted CPI Inflation Hits New Record High Dating to 1987
This morning, I commented Housing-Adjusted CPI Inflation Hits New Record High Dating to 1987
But that’s the rear view mirror. Case-Shiller home prices are very lagging, perhaps as much as four or five months. See link for discussion.
Looking Ahead
Looking ahead, Expect More Stock Market Pain Because It’s Coming
I see massive demand destruction on top of plunging home sales with mortgage rates now well above five percent.
So, forget about a soft landing.
The correct question is What’s the Shape of the Hard Landing?
And where will stocks be? How many hikes do you see now?
This post originated at MishTalk.Com.
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