The GDPNow Model forecast for fourth quarter GDP dipped to 2.6% from 2.9% on December 1.

Tuesday’s commerce reports on trade and factory orders played no part of the downgrade.

Instead, auto sales and the employment report from last Friday factored into the analysis.

here-we-go-again

Latest forecast: 2.6 percent — December 6, 2016

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 2.6 percent on December 6, down from 2.9 percent on December 1. The forecast for fourth-quarter real personal consumption expenditures growth fell from 2.5 percent to 2.3 percent on December 2 after the employment situation release from the U.S. Bureau of Labor Statistics and the auto sales release from the U.S. Bureau of Economic Analysis. The forecast for fourth-quarter real nonresidential equipment investment growth has fallen from 6.6 percent to 3.9 percent since December 1.

Contributions

Date Major Releases GDP PCE Equip- ment Intell. prop. prod. Nonres. struct. Resid. inves. Govt. Net exports CIPI
31-Oct Initial nowcast 2.7 1.66 0.24 0.20 0.01 0.12 0.07 -0.01 0.38
9-Nov Wholesale trade 3.1 1.82 0.32 0.21 0.00 0.16 0.08 0.05 0.50
10-Nov Monthly Treasury Statement 3.1 1.82 0.32 0.21 0.00 0.16 0.02 0.05 0.50
15-Nov Retail trade, Import/Export prices 3.3 2.00 0.32 0.21 0.00 0.18 0.02 0.05 0.55
16-Nov Industrial production, PPI 3.3 2.05 0.31 0.21 0.03 0.17 0.02 0.06 0.50
17-Nov Housing starts, CPI 3.6 2.06 0.32 0.21 0.03 0.40 0.02 0.05 0.50
22-Nov Existing-home sales 3.6 2.06 0.32 0.21 0.03 0.36 0.02 0.05 0.50
23-Nov Dur. manuf., New home sales/costs 3.6 2.06 0.38 0.21 0.03 0.26 0.02 0.05 0.56
25-Nov Advance Economic Indicators 3.1 2.06 0.38 0.21 0.03 0.26 0.02 -0.22 0.40
30-Nov GDP (Nov 29), Personal income/PCE 2.4 1.51 0.26 0.18 0.04 0.26 0.02 -0.24 0.43
1-Dec ISM Manuf., Construction spending 2.9 1.74 0.36 0.18 -0.09 0.45 0.11 -0.28 0.43
2-Dec Employment situation, Auto sales 2.6 1.55 0.28 0.19 -0.10 0.41 0.09 -0.26 0.45
5-Dec ISM Nonmanufacturing Index 2.6 1.57 0.29 0.19 -0.10 0.41 0.09 -0.26 0.45
6-Dec Foreign trade, Manufacturing (M3) 2.6 1.57 0.22 0.19 -0.10 0.41 0.09 -0.22 0.46

What Happened?

The above table explains clearly: The big upside in non-manufacturing ISM, the big upside in factory orders, and the expansion in the trade deficit, the later to the downside, were all factored in.

It’s not the reports that matter in these forecasts, it’s how the forecasts did in comparison to model expectations that matters.

The report that mattered but missed by most was last Friday’s jobs report. Despite the gaga over the falling unemployment rate, what really mattered was wages. Hourly earnings did nothing on a revised basis.

I commented on that in Unemployment Rate 4.6%; Establishment Survey Jobs +178,000; Household Survey Employment 160,000.

Average hourly earnings of private workers rose $0.02 to $21.73. Average hourly earnings of private service-providing employees rose $0.01 to $21.50. Average hourly earnings of manufacturers declined $0.02 to $20.62.

Revisions take away those gains and the manufacturing loss. Here are last month’s numbers:

Average hourly earnings of private workers rose $0.04 to $21.72. Average hourly earnings of private service-providing employees rose $0.04 to $21.50. Average hourly earnings of manufacturers rose $0.05 to $20.62.

Reporting Highlights

  • Last month the BLS reported “Average hourly earnings of private service-providing employees rose $0.04 to $21.50.”
  • This month the BLS reported “Average hourly earnings of private service-providing employees rose $0.01 to $21.50.”

Wages did not go up they were flat. Few caught this. A penny may not sound like much, but the effects are cumulative and add up quickly.

This stuff happens all the time with little fanfare. Strike that. When revisions are up, mainstream media is typically sounding the bull horn. Mainstream media typically provides silence on negative revisions.

I attempt to be fair about these things. I report on revisions, if I catch them, provided I believe they are significant enough to matter.

Revisions are often deeply buried in reports (if present at all). Unless you check archive history, you will not see them. Much of the time, there is an “r” for revised, but you do not see from what unless you go back to prior reports.

Mishcast of Nowcast, GDPNow

Wholesale trade numbers come out on Friday. Given advance numbers, I expect no change in GDPNow.

I also take a stab that factory numbers and the trade deficit numbers lower Nowcast by 0.1 percentage points. Nowcast is currently at 2.7%.

If my guess is correct, the models will converge at 2.6% on Friday when both report.

Mike “Mish” Shedlock