In the wake of a dismal personal income and outlays report today, the Atlanta Fed GDPNow Model forecast plunged to +0.6%.
Recall that on March 21, Atlanta Fed president Dennis Lockhart cited “sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April.”
I took exception to that claim when he made it, and a couple of times since then. Specifically, I cautioned Lockhard better wait for some more economic reports.
Since then, most economic reports have ranged from muddle-through to terrible.
Latest forecast: 0.6 percent — March 28, 2016
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.6 percent on March 28, down from 1.4 percent on March 24. After this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis, the forecast for first-quarter real consumer spending growth fell from 2.5 percent to 1.8 percent. The forecast for the contribution of net exports to first-quarter real GDP growth declined from –0.26 percentage points to –0.52 percentage points following this morning’s advance report on international trade in goods from the U.S. Census Bureau.
Tracking Lockhart’s “Sufficient Momentum” Thesis
GDPNow – March 21
Kaleidoscope Eyes
That was the GDPNow estimate before Lockhart’s speech to the Rotary Club of Savannah. His speech was called Kaleidoscopic Context for Monetary Policy.
I commented on his speech with my take called Kaleidoscope Eyes.
GDPNow – March 24
For my take on March 24, please see GDPNow Estimate Sinks to 1.4%; What About That “Sufficient Momentum” for Rate Hikes?
GDPNow – March 28
Momentum Since Lockhart’s Speech
- On March 21, the same day as Lockhart’s speech, I commented Existing Home Sales Plunge “Surprising” 7.1%, Price Concessions the Norm; What Happened? … Data was so bad the National Association of Real Estate cheerleaders showed concern. “Know Before You Owe” kinks have been worked out. The “surprise” downtrend continues.
- On March 23, I commented New Home Sales Near Consensus on Muddle-Through Track … It’s easy to spot the lack of momentum in housing starting a year ago. This is a muddle-through track, and a weak one at that.
- On March 24, Durable Goods Orders Plunge 2.8%; Will a Falling Dollar Soon Help? … The answer to my falling dollar question is “no”. I used a chart to explain why.
- On March 28, we noted Consumer Spending Outlook Buckles with “Surprisingly Weak” Income Report
What Led Lockhart Astray?
In my Kaleidoscope Eyes take, I wondered if Locklhart was even following his own Atlanta Fed model. He should be because he even mentioned it in his speech.
I suspected then, as I do even more so now, that Lockhart got advance warning from the Richmond Fed about an exceptionally strong-looking Richmond Fed report that came out on March 22, the day after Lockhart’s speech.
See my take: Richmond Fed Manufacturing Activity Jumps Most Since April 2010, Biggest Change in 23 Years; What’s Going On?
If I am correct about “what’s going on”, Lockhart does not know much about the weaknesses of small sample diffusion indexes and made a foolish prediction based on them.
For whatever reason, Lockhart went out on a weak limb, and that limb, with Lockhart on it, has come crashing to earth.
There’s plenty of momentum, but it’s all downhill. This is a recession track.
Mike “Mish” Shedlock
black diamonds slope
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The actual GDP numbers have been negative for almost a decade. I draw all reader’s attention to the Chapwood Index which measures inflation for necessities and essentials in US Metro areas. You will see that it has averaged over 10% (COMPOUNDED!)
I am surprised that Mish has not fone more digging on this.
Peter Schiff seems to be spot on: what do you think about this commentary?
Mish edit: Link removed – had nothing to do with Schiff
There was not a damn thing in there about Schiff
I removed the link
All right, you hate Peter Schiff. Fair enough. But Lockhart is saying that, even with GDP estimates still rather weak, he believes that higher rates are warranted. In the context that Esther George dissented at the last FOMC meeting, saying she wanted to raise rates at that time, and since then, Bullard, Williams, and others on the FOMC have also come out publicly calling for higher interest rates sooner than later, suppose someone said: Janet Yellen is a friend of Hilary Clinton, and she is therefore politically motivated to keep interest rates low and continue dovish commentary despite others on the FOMC calling for higher interest rates. She is trying to avoid the situation where the bubble pops just before the election, so that Hilary might be the more likely candidate to win. Yet, she is permitting (and probably tacitly encouraging) the other members of the fed to talk about higher rates to engender the sense of economic strength that simply isn’t present. Do you think that is an accurate depiction of the Fed right now? Or is there some other explanation? For example, do the hawks actually perceive economic strength (despite much of the economic leading indicators are at levels only seen during prior recessions), or are the hawks simply trying to give us ammo to fight the upcoming recession and concomitant market crash? Finally, do you think QE4 will be the next move from the fed, or do you think they will still tighten? Even the market thinks we get one hike by December with greater than 50% odds. With GDP now showing 0.6% growth for Q1, I can see no hikes in the short term, but the ECRI leading index has shot up from negative to positive over the last 5 weeks, Chinese data have improved, and individual leading indicators have also rebounded (albeit still only slightly above breakeven numbers). Will it be enough, or will we have more QE this year, or even negative rates? What do you think?
Regards,
Bob