Today we say the results of the allegedly “very positive” August new home sales report in which sales declined 7.6%.

Total construction spending in August declined 0.7% and is now negative year-over-year. For discussion, please see Construction Spending Unexpectedly Dives 0.7%, Last Month Revised Lower.

With the construction spending report, the Atlanta Fed GDPNow Model estimate for 3rd quarter GDP continued its plunge, but rate hike odds in December rose.

Latest forecast: 2.2 percent — October 3, 2016

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2016 is 2.2 percent on October 3, down from 2.4 percent on September 30. After this morning’s construction spending report from the U.S. Census Bureau, the forecast of third-quarter real nonresidential structures investment growth fell from 8.4 percent to 4.7 percent and the forecast of third-quarter real government spending growth declined from 0.8 percent to 0.1 percent.

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GDP Estimates

  • 3rd Quarter GDPNow October 3: 2.2%
  • 3rd Quarter Nowcast September 30: 2.2%
  • 3rd Quarter Markit September 27: “Around 1.0%” (see first link below)
  • 4th Quarter Nowcast September 30: 1.2%

With today’s report I expect the next Nowcast to look something like 2.0% for 3rd quarter and 1.1% for fourth quarter.

Meanwhile rate hike odds are actually rising.

Fedwatch Rate Hike Odds

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Given the process of recession determination is months after the fact, this is now a distinct possibility, assuming of course the Fed does hike.

My expectation, however, is the Fed will not hike. These economic reports are starting to look very ugly and growth expectations in Fed models have been plunging fast.

Mike “Mish” Shedlock