The Amazing Down Spiral of Atlanta Fed’s Q3 GDPNow Forecast

But is the auto sales data inflated?

After a crummy first half, the US economy really, really needed a strong third quarter, more than a strong one, a heroic one, to pull the year out of the doldrums. And at first, according to the initial estimates by the Atlanta Fed’s GDPNow model, it looked like we would be getting it, which triggered a big sigh of relief around the country. But the plunge since those heady estimates in early August has been breathtaking.

The GDPNow forecasting model is attempting to estimate what the official first estimate of quarterly GDP will be. This “nowcast” model takes in the data as it is released. Thus it gets more accurate as it closes in on the release date of the official first estimate of GDP. So this plunge is not propitious.

The current forecast dropped to 1.9% annualized GDP growth, down from 2.1% a week ago, and down from 3.7% in early August. Over those two months, the model has cut its growth estimate in half!

Today, the GDPNow forecast was dragged down by its forecast of third-quarter real personal consumption expenditures growth, which fell from 2.9% to 2.6% after the retail sales report from the Census Bureau this morning. I added the red line to the chart to show the slope:

us-atlanta-fed-gdpnow-2016-10-14

“Annualized” GDP growth means that if the current growth rate were to continue for an entire year, GDP growth for the entire year would be 1.9%. So that would be back in the quagmire range of the past six years. By now no one even tries to trot out the illusion of hitting “escape velocity” next spring.

Also note how the range of “blue chip consensus” forecasts (shaded area) remains stubbornly optimistic. Apparently, they haven’t gotten the memo yet.

The standout in today’s retail sales report for September, which is what kicked the GDPNow forecast down, was the continued decline in sales by General Merchandise retailers, now down 2.5% from a year ago.

Nonstore retailers – online retailers such as Amazon – did well, up 10.6% from a year ago. Double-digit growth in this category is the norm.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.