In the wake of dismal retail sales, first-quarter GDP forecasts by the Atlanta Fed GDPNow model and the FRBNY Nowcast model ticked lower. Let’s investigate the details and compare the current estimates.
Nowcast Latest Forecast: 2.6 Percent — April 14, 2017
- The FRBNY Staff Nowcast stands at 2.6% for 2017:Q1 and 2.1% for 2017:Q2.
- Incoming data during the week lead to a reduction of the nowcast by 0.2 and 0.5 percentage point for 2017:Q1 and 2017:Q2, respectively.
- The changes in the nowcast were mainly driven by a negative surprise from retail sales.
GDPNow Latest Forecast: 0.5 Percent — April 14, 2017
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.5 percent on April 14, down from 0.6 percent on April 7. The forecast for first-quarter real consumer spending growth fell from 0.6 percent to 0.3 percent after this morning’s retail sales report from the U.S. Census Bureau and the Consumer Price Index release from the U.S. Bureau of Labor Statistics.
The impact of this week’s economic forecasts was easy to predict.
On April 12, in Import Prices Decline, Export Prices Rise: Impact on 1st Quarter GDP Estimates? I had this to say: “Effectively, import prices were flat as export prices rose 0.2% for the month. This will add a tick or so to GDP estimates for the first quarter but it will likely be at the expense of negative pressures for the second quarter.”
The GDP Now model did tick up 0.1 percentage points on the import/export data, then declined 0.2 percentage points today on retail trade data.
The GDP downgrade would have been worse had it not been for the CPI running well under consensus at -0.3% for the month.
A week ago, in Six GDP Estimates: ZeroHedge, Mish, GDPNow, Nowcast, ISM, Markit I noted my April 3 prediction of 0.6% while commenting:
The jobs report did not change my estimate.
Next Friday, we have a trifecta of CPI, Retail Sales, and Business Inventories. Those reports can easily combine to move my forecast down to zero or back above one percent.
My guess now is that something on the order of 0.5% is baked in the cake.
Next week we have Industrial Production numbers, Housing Starts, and Existing Home Sales reports. The following week we have New Home Sales, Durable Goods Orders, and International Trade reports.
The International Trade Report is unlikely to impact estimates much. I expect the durable goods report to be weak due to autos and because aircraft orders can’t keep the boat afloat forever.
The numbers most likely to have a big impact on GDP are housing related.
Had it not been for the -0.3% CPI reading today, I would have lowered my first-quarter estimate to 0.3%. As it stands, I will estimate 0.4%.
Weak restaurant sales noted in today’s retail sales report may be ominous. Risks are to the downside.
- Mish April 14: 0.4%
- GDPNow April 14: 0.5%
- FRBNY Nowcast April 14: 2.6%
- ISM April 3: 4.3%
- Markit April 5: 1.7%
The “advance” GDP number for the first quarter comes out on April 28.
If housing data points are bad, and the GDP deflator (inflation) is high, we can easily see a negative print on April 28.
If I am in the ballpark, the Fed will not hike in June.
- Retail Sales Unexpectedly Decline, Revisions Even Worse
- Consumer Prices Unexpectedly Decline, First Drop Since February 2016: Reality Check
- Hard-Boiled vs Soft-Boiled Economic Egg Debate: Cracking the Shells
- Six GDP Estimates: ZeroHedge, Mish, GDPNow, Nowcast, ISM, Markit
- Debate over the Yield Curve: Is it Steepening or Flattening?
- General Merchandise Jobs Down 35,000 in March, Down 89,000 Since October: Is This Big Deal?
- Economists never know what the weather “was” until economic reports come out!
- Another ISM/PMI Divergence: Non-Manufacturing
Mike “Mish” Shedlock